Monetary Policy: Rules vs. Discretion

Published on: November 25, 2019

Sound monetary policy is essential for strong economic growth and stability. Monetary policy is often only noticeable when the Federal Reserve gets it wrong, as it has several times in recent history. In order to get it right, it helps to follow a rules-based policy instead of one based on discretion.

Discussion Questions:

1. Why has discretionary monetary policy replaced rules-based monetary policy at various points in our history?
2. What would cause the Federal Reserve to adopt a discretionary policy?

Additional resources:

• Read John Taylor’s chapter “National and International Monetary Reform” in Blueprint for America here.
• Read The Taylor Rule and the Transformation of Monetary Policy, available here.
• Read Rules for International Monetary Stability: Past, Present, and Future by Michael D. Bordo and John B. Taylor, available here.