Monetarist Rules in the Light of Recent Experience
Recent experience does not include a "monetarist experiment," as some have argued, but may slightly reinforce preexisting reasons for doubting that the best way of formulating monetarist policy prescriptions is in the form of a constant growth rule for the money stock.A more desirable rule would pertain to the monetary base, which is much more directly under Fed control. While a constant base growth rule might provide good macroeconomic performance, better results should be obtainable from a rule that at regular intervals adjusts the base growth rate upward or downward depending on whether nominal GNP is below or above a target path that specifies constant, non-inflationary growth for that variable. This type of rule is activist, to an extent, but is non-discretionary.The implied absence of policy-making flexibility is desirable for reasons explained in the literature on dynamic inconsistency.
McCallum, Bennett T. "Monetarist Rules in the Light of Recent Experience." American Economic Review, Vol. 74, No. 2, (May 1984), pp. 388-391. citation courtesy of