ABSTRACT
The filiation between monetarism and the NMC is best understood by pinpointing the change operated in the core assumptions of the underlying approaches. What the NMC did is replace the monetarist assumption of money-supply targeting by the assumption that the central bank follows an interest-rate setting procedure (Romer, 2000, p. 154), which is at the heart of the NMC. We consider this theoretical pillar in this chapter, by comparing two different perspectives: post-Keynesian and New Keynesian economics. This chapter continues the reflection initiated in Chapter 6. In Chapter 3, we presented a simple monetary policy rule. Generalizing this approach, we show in this chapter that interest-rate setting policies under the NMC are embedded in the well-known Taylor rule, developed with steadfast consistency by Stanford economist John Taylor and his followers. Meyer (2001, p. 3) argues that this precept of monetary policy ‘has the advantage of more accurately capturing the prevailing operating procedures at central banks around the world’. However, one objective of this book is to show that a truthful characterization of the pre-GFC era may no longer be relevant in a post-crisis world.
