Legislating a Rule for Monetary Policy

Thursday, November 18, 2010

Economics Working Paper WP10109

In these remarks I discuss a proposal to legislate a rule for monetary policy. The proposal modernizes laws first passed in the late 1970s, but largely discarded in 2000.

A number of years ago I proposed a simple rule as a guideline for monetary policy. I made no suggestion then that the rule should be written into law, or even that it be used to monitor policy, or hold central banks accountable. The objective was to help central bankers make their interest rate decisions in a less discretionary and more rule-like manner, and thereby achieve the goal of price stability and economic stability. The rule incorporated what we learned from research on optimal design of monetary rules in the years before.

Legislating a Rule for Monetary Policy