Monetary policy rules revolutionize global financial stability and central banking.
The article discusses the debate between using set rules or flexible discretion in making monetary policy decisions. Research has shown that using rules based on economic models can lead to better outcomes in monetary policy. However, it can be challenging to clearly define when to use rules versus discretion in practice. Despite the importance of central bank independence, there have been instances of moving away from rules-based policy. Recent focus in the United States has been on implementing policy rules in monetary policy decisions.