Ltaifa (2007) Can a Rule-based Monetary Policy
Framework Work in a Developing Country?
This oversimplified view of both economists then often causes the impression that Keynes opted for discretionary short-run focused fiscal policy, whereas Friedman preferred a long-run rule-based monetary policy
. Rivot, however, shows that Keynes opted for a 'Middle Way' (3), that is, for a concept mixing capitalistic and individually profit-maximising elements with coordination regarding economic policies (45).
Instead, Taylor advocates rule-based monetary policy
, control of federal debt, and scaling back entitlement programs.
Over the last decades, a shift from discretionary policy to rule-based monetary policy
has been evident.
He favors a rule-based monetary policy
to stabilize the growth of nominal income and achieve long-run price stability.
Under this regime, and under the subsequent flexible inflation targeting policy, the Bank has maintained a credible commitment to price stability by adopting a consistent rule-based monetary policy
, supported by a high level of transparency in forecasting and the operation of policy.
McCallum and Edward Nelson compare alternative ways to characterize rule-based monetary policy
. Traditionally, the term monetary policy rule has been used in the sense of "instrument rules"--specific formulas for setting the federal funds rate, money growth, or some other controllable instrument in response to current economic conditions, as measured by recent data or forecasts.