TY  - JOUR
AU  - Barro,Robert J.
TI  - Rules versus Discretion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1473
PY  - 1986
Y2  - December 1986
UR  - http://www.nber.org/papers/w1473
L1  - http://www.nber.org/papers/w1473.pdf
N1  - Author contact info:
Robert J. Barro
Department of Economics
Littauer Center 218
Harvard University
Cambridge, MA 02138
Tel: 617/495-3203
Fax: 617/496-8629
E-Mail: rbarro@harvard.edu
AB  - Under a discretionary regime the monetary authority makes no commitments about future money and prices. Then, if surprise inflation conveys economic benefits and if people form expectations rationally, it turns out that the equilibrium involves high and variable monetary growth and inflation. Moreover, since the high rate of inflation is anticipated there are no benefits from inflation surprises. The implementation of an enforced rule can lower the mean rate of inflation while delivering the same average amount of inflation surprises, namely zero. Using these results as a background, the paper discusses alternative monetary rules, including quantity versus price rules and a prescription for stablilizing nominal GNP. This discussion touches on the distinction between positive and normative economics, which leads to a pessimistic appraisal of the role for economists' policy advice.
ER  -