chapter
Discussion
Pages 5

This chapter provides an excellent overview of the progress made by the profession in monetary macroeconomics during the past forty years. Frederic Mishkin lists nine theoretical, if not empirical, insights which have implications for the conduct of monetary policy and which most economists subscribe to today. He calls them ‘principles’. I would prefer to reserve the word ‘principle’ for an axiomatic statement describing a rule of conduct derived from an empirical law, a model or some ethical belief. For example, the Taylor principle is indeed a principle. From all macroeconomic theories we know, it follows that the central bank must respond to observed excess inflation by raising the real rate of interest, not just the nominal rate, if inflation is to be stabilized.