ABSTRACT
Introduction In the course of policy implementation, central banks might be tempted to follow mechanical rules, because the latter make it possible to observe monetary policy actions more accurately. The rules versus discretion dichotomy is certainly not a recent one, as nineteenth-century controversies can be meaningfully analyzed through the lenses of this recurrent debate in the History of economic thought (Asso and Leeson, 2012, p. 7). A simplified monetary policy rule can also serve as an introduction to the NMC. Building on Arestis and Sawyer, and also Lavoie, a simple macroeconomic model with three equations is presented; we start with the aggregate demand and inflation equations (akin to the well-known IS and LM curves of the neoclassical synthesis). The third equation is described as an interest rate rule that translates into the Taylor rule (McCallum, 2001), which is discussed in more detail in Chapter 7.
