Retrospectives: On the Evolution of the Rules versus Discretion Debate in Monetary Policy
Journal of Economic Perspectives
vol. 36,
no. 3, Summer 2022
(pp. 245-60)
(Complimentary)
Abstract
Episodes of macroeconomic upheaval associated with monetary policy failure have provided the stage for important debates on rules versus discretion. We discuss the main features, results, commonalities, and differences in the debates that emerged after three such episodes. The modern debate was born during the Great Inflation of the 1970s and focused on both rules versus discretion and the properties of alternative rules. The middle debate originated with Henry Simons and the Chicago School during the Great Depression in the 1930s and focuses on policy uncertainty. The earliest systematic debate involved the Currency and Banking Schools in Britain in the 1820s, but, in spite the views of many of its participants and doctrinal historians, it seems to have primarily been about the degree of activism under a single rule—that of the gold standard.Citation
Dellas, Harris, and George S. Tavlas. 2022. "Retrospectives: On the Evolution of the Rules versus Discretion Debate in Monetary Policy." Journal of Economic Perspectives, 36 (3): 245-60. DOI: 10.1257/jep.36.3.245Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E52 Monetary Policy
- N12 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
- N13 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Europe: Pre-1913
- N23 Economic History: Financial Markets and Institutions: Europe: Pre-1913
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