Must-Read: Greg Ip: The False Promise of a Rules-Based Fed

Must-Read: It does boggle my mind that John Taylor and Paul Ryan would take the 2004-today experience as suggesting that the Federal Reserve should be even loosely bound by any sort of policy “rule”:

Greg Ip: The False Promise of a Rules-Based Fed: “That suggests two possible outcomes…

…One, the Fed will repeatedly change the rule or deviate from it, which defeats the supposed purpose of the rule, which is for the Fed be predictable and constant. Or the Fed, to avoid invasive audits by Congress, might stick to the rule longer than it should until the economic consequences are intolerable. Stanley Fischer… once said of exchange-rate rules: ‘The only sure rule is that whatever exchange-rate system a country has, it will wish at some times that it had another one.’ Similarly, history suggests that if the Fed is forced to adopt a rule for monetary policy, it will eventually have to abandon it. The only question is how costly that process is likely to be.

December 1, 2015


Brad DeLong
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