Monetary Policy Analysis

The past several years have seen very rapid development in the area of monetary policy analysis.1 A welcome aspect is the convergence of approaches used by academic and central-bank economists. For example, examination of a notable NBER conference volume2 and/or a special issue of the Journal of Monetary Economics (Vol. 43, July 1999) suggests that it would be difficult, if not impossible, to identify the author of almost any article or comment as belonging to one group or the other. A major stimulus to this convergence, I believe, was John Taylor’s exposition of the now-familiar “Taylor Rule,”3 which encouraged academics to focus on policy rules expressed in terms of interest-rate instruments (thereby conforming to actual central bank practices) and encouraged central bankers to think of policy in a more rule-like fashion.