Monetary and Economic Studies Vol.14, No.1 / July 1996

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.

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

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 1996 Bank of Japan All Rights Reserved.

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