The Case for Rules in the Conduct of Monetary Policy: A Concrete Example

The purpose of this paper is to provide a nontechnical but reasonably up-to-date description of the case for rules, as opposed to discretion, in the conduct of monetary and fiscal policy. Special attention will be paid to the current state of macroeconomic theory and to the experiences of developed economies in the postwar (i.e., post-World War II) era. A specific rule for monetary policy is proposed and some evidence regarding its potential effectiveness is reported.