NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policy Strategies

Robert P. Flood, Peter Isard

NBER Working Paper No. 2770
Issued in November 1988
NBER Program(s):   ITI   IFM

The paper considers the merits of rules and discretion for monetary policy when the structure of the macroeconomic model and the probability distributions of disturbances are not well defined. It is argued that when it is costly to delay policy reactions to seldom-experienced shocks until formal algorithmic learning has been accomplished, and when time consistency problems are significant, a mixed strategy that combines a simple verifiable rule with discretion is attractive. The paper also discusses mechanisms for mitigating credibility problems and emphasizes that arguments against various types of simple rules lost their force under a mixed strategy.

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Document Object Identifier (DOI): 10.3386/w2770

Published:

  • IMF Staff papers, Vol. 36, no. 3 (1989): 612-632.
  • Published as "Monetary Policy Strategies - A Correction: Reply", IMF, Vol. 37, no. 2 (1990): 446-448.

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