Rules and Discretion in the Conduct of Monetary Policy

When the organizers of this conference invited me to discuss Benjamin Friedman's paper, they anticipated that we would not agree about the costs and benefits of adherence to precommitted policy programs, or rules. I will not disappoint them. But I would like to begin by commending Ben for defining discretion, outlining some of the procedures for implementing a discretionary policy, and arguing for its virtues. In a time when efficient markets, rational expectations, neutral money and time consistency have changed academic discussion, it has become hard to find an academic economist who defends discretionary monetary policy.