A Review of Monetary Policy Rules.

The article focuses on the book "Monetary Policy Rules," edited by John B. Taylor. It contains papers by seventeen authors from a conference about monetary policy. Most of the papers present models in which monetary policy can be evaluated, and they evaluate a common set of monetary policy rules. The editor's introduction provides a summary of the volume and of the implications of the cross-model comparisons of the effects of the various policy rules, and his own contribution studies the historical evolution of monetary policy rules and their effects. The book is about the Taylor rule. This is a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. The conclusions from the cross-model comparison of rules are as follow. A Taylor rule, like what is estimated by ordinary least squares from post-1982 U.S. data, performs well in most models. Performance can be improved, in terms of inflation and the variability of output by making the coefficients in the Taylor rule larger, so that interest rates are more responsive to inflation and the output gap.