Simple Rules, Discretion and Monetary Policy
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NBER Working Paper No. 2934
Issued in April 1989
NBER Program(s): ITI IFM
In this paper we explore the possibilities arising under a policy in which a partially state contingent money-supply rule is mixed with discretion. In addition to demonstrating that such mixed strategies can dominate both complete discretion and rigid adherence to the partially state contingent rule, we investigate the appropriate setting of parameters in a partially state contingent policy when it is acknowledged that the rule will not be followed on all occasions--i.e., that sometimes the monetary authority will resort to discretion.
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