Guiding Principles and Monetary Policy

Few subjects in monetary analysis have received more attention than the principles used to guide the conduct of monetary policy. Two types of issues arise frequently in these discussions. One is the issue of strategy. The central bank or monetary authority responds to some events and ignores others. If not by explicit choice, then after the fact, the actions of the monetary authority reflect a strategy chosen from the positions that lie along the spectrum between invariant rules and unrestricted authority. The second is the choice of tactics, or procedures, for carrying out policy. Much of the literature on this issue for the past decade is concerned with the choice of money, interest rates or some combination of money and interest rates as targets or indicators of monetary policy