Policy Rules as a Means to a More Effective Monetary Policy

John B. Taylor

This paper reviews recent developments in the design of monetary policy rules and shows that there are several key similarities between interest rate rules and money supply rules.In particular,both types of rule entail a positive response of interest rates to real output.The paper also shows why setting targets and using policy rules to achieve those targets can make monetary policy more effective.

Key words:Monetary policy;Policy rule;Inflation target;Price stability;Output stability;Time inconsistency

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