Comments on Bennett T. McCallum, “The Case for Rules in the Conduct of Monetary Policy: A Concrete Example” and on Alan S. Blinder, “The Rules-versus-Discretion Debate in the Light of Recent Experience”

Has the case for rules really been discredited by recent experience? The easy answer would be: we don’t know because rules have never been tried. To judge the desirability or quality of specific rules by looking at the American experience of the early 1980s does not seem to be appropriate. In this period, the American authorities tried to tackle two enormous problems created, to a large extent, by government policies: they were fighting inflation and reducing regulations in financial markets at the same time. It is true, as Alan Blinder has argued, that there was much uncertainty about which of the M’s should be used as targets; but neither this uncertainty nor the fact that definitions changed are by themselves arguments against monetary targeting or monetarist rules. Nor is there unambiguous evidence that the demand for money, applied to a consistently-defined measure of money, has become unstable in this period. Thus, the precondition for the monetarist prescription has not been damaged.