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1Orphanides (2017: 1) holds that “the presence of uncertainty … cannot serve as a valid argument for defending discretionary policy. Indeed, uncertainty raises the potential costs of discretion as it makes it harder to understand how large a policy deviation may be from what would have been the desirable systematic response to a shock.”
2See Financial CHOICE Act of 2017 (H.R. 10):https://financialservices.house.gov/uploadedfiles/hr_10_the_financial_choice_act.pdf.
3The analysis of alternative monetary rules in this article focuses on rules that are potentially stabilizing and omits rules such as the real bills doctrine that could be destabilizing. For an in‐depth discussion of the real bills doctrine, see Humphrey and Timberlake (2017).
4For a summary of the debate, see Taylor (2015: 11).
5A useful overview of the case for rules over discretion is provided in Salter (2017: 444–48). See also (Taylor 2017).
6For a critique of Fischer’s “rule‐by‐experts” approach to monetary policymaking, see White (2017).
7See White (1999: chap. 10) for an overview of the time‐inconsistency case for rules, as first presented by Kydland and Prescott (1977) and elaborated on by Barro and Gordon (1983).
8For a detailed discussion of the theory of monetary disequilibrium, see Warburton (1966, especially his list of postulates underlying that theory, pp. 28–29). Also see Yeager (1986,1997) and Dorn (1987).
9For an in‐depth discussion of alternative monetary rules, see White (1999), Dorn (2017), and Salter (2017).
10For a discussion of meta‐monetary rules, see Boettke, Salter, and Smith (2016). On the idea of a “monetary constitution,” see Yeager (1962) and White, Vanberg, and Köhler (2015).
11See Pub. L. 95–188, 91 Stat. 1387, enacted November 16, 1977.
12For these and other reasons, Beckworth and Hendrickson (2016) argue that the basic Taylor rule is inferior to a nominal GDP rule. Also see Selgin, Beckworth, and Bahadir (2015) on the case for a nominal GDP rule.
13One could argue that Friedman’s k percent rule was never really tried and that if it had been, monetary velocity may have been more stable (seeWhite 1999: 223).
14Haraf (1986: 361) has argued that, under a properly specified price‐level rule, there would be increased certainty about future price levels that would improve the environment for nominal contracting. That improvement would reduce the lag between changes in the monetary base and the speed at which the observed price level approaches the target level. If so, a major objection to price‐level targeting is removed. For further support of a price‐level rule, see McCulloch (1991) and Dittman, Gavin, and Kydland (1999).
15Early proponents of nominal income targeting include Robert Hall (1981) and Robert Gordon (1985). George Selgin’s “productivity norm” is also a type of demand rule, in which the price level would be allowed to vary inversely with real output while maintaining a stable path of aggregate spending (Selgin 1997).
16Interest rates are not a good indicator of the stance of monetary policy: if the Fed increases money growth, and money incomes and inflation expectations rise, nominal interest rates will follow. Changes in base money are a better indicator, but only if base velocity is stable so there is a predictable relationship between base money, monetary aggregates, and nominal income. The best indicator is the behavior of spending itself.
17See White (1999: 223–24) for the simple analytics of the McCallum rule. Christensen (2011) provides “a market monetarist version of the McCallum rule.”
18On the importance of rules for obtaining monetary order and reducing the uncertainty present in a discretionary government fiat system, see Brunner (1985).
19Meltzer’s rule to stabilize the anticipated domestic price level of those countries who adopt his rule would still allow nominal exchange rates to vary with real exchange rates. In particular, “anticipated and actual exchange rates would be subject to change with changes in relative productivity growth, rates of growth of intermediation, differences in rates of saving, in expected returns to capital, in labor‐leisure choice or other real changes” (Meltzer 1989: 80–81).
20On the impact of unconventional monetary policy on bank lending, especially the effect of overly zealous maroprudential regulation, see Calomiris (2017).
21There is no doubt that payment of interest on excess reserves (beginning in October 2008) at a rate exceeding interest on highly liquid assets (such as short‐term Treasuries), has sterilized much of the newly created base money from the Fed’s large‐scale asset purchases. Humphrey (2014: 7) argues that paying IOER increases the “demand for idle reserves” and prevents them from being “lent out into active circulation in the form of bank deposit money.” He notes that the Fed’s attempt to expand the broad money supply to counter the financial crisis was hampered by paying IOER, which defeated the Fed’s lender‐of‐last‐resort function. According to Humphrey (in personal correspondence with the author), instead of paying a positive interest rate on excess reserves, the Fed should have charged a negative (penalty rate) to spur bank lending and deposit creation.
22Belongia and Ireland (2015) have argued that the Fed could use Divisia monetary aggregates to make long‐run targeting of NGDP feasible.
23For a more detailed discussion, see Greenfield and Yeager (1983), and Yeager and Greenfield (1989).
24Bradley and Jansen (1989: 40) contend that changes in the assumptions about the labor market can make a price‐level rule theoretically superior to a demand rule. Also, they argue that “ignorance of the correct equations, parameter values and lag structure that characterize the U.S. economy reduces the appeal of nominal GNP targeting.”
25See, e.g., White (1989), Selgin (2017c), Selgin and White (1987,1994).
26Selgin (2016a) provides a similar analysis.
27On the unsustainability of unconventional monetary policies and the exit problem, see Dowd and Hutchinson (2017: 313–17).