PARTICIPANTS
Michael Bordo, Humberto Martínez, John Taylor, Annelise Anderson, Rafael Berriel, Michael Boskin, David Brady, Robert Chang, John Cochrane, Steve Davis, Randi Dewitty, Sami Diaf, Darrell Duffie, Christopher Erceg, David Fedor, Bob Hall, Otmar Issing, Robert King, Roman Kraussl, Jeff Lacker, David Laidler, John Lipsky, Michael Melvin, David Neumark, Athanasios Orphanides, David Papell, Elena Pastorino, Ned Prescott, Valerie Ramey, Stephen Redding, J.R. Scott, Pierre Siklos, Tom Stephenson, Jack Tatom, Harald Uhlig, Alexander Zentefis
ISSUES DISCUSSED
Michael Bordo, the Ilene and Morton Harris Distinguished Visiting Fellow at the Hoover Institution and the Board of Governors Professor of Economics and director of the Center for Monetary and Financial History at Rutgers University, and Humberto Martínez, Assistant Professor at the Economics Department at Universidad de Chile, discussed “Rules Versus Discretion: Decoding FOMC Policy Deliberations,” a paper with Klodiana Istrefi (Banque de France).
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
This study provides evidence on the usage and preferences of Federal Reserve’s Federal Open Market Committee (FOMC) regarding the balance between rules and discretion in policy decisions. Analyzing FOMC transcripts over 40 years, we find that while Discretion has been a consistent feature in the language of the FOMC, the use of the language of Rules surged notably in the mid-1990s, aligning with theoretical advancements in monetary policy. We identify that a rise in Discretion terminology occurs during economic downturns and periods of heightened uncertainty. In contrast, a rise in the language of Rules is supported by higher references to terms such as “credibility” and “commitment,” and is more prevalent among hawkish FOMC members. Our findings link the increased use of the language of Rules (Discretion) language to tighter (easier) monetary policy, revealing a significant role of this debate in shaping policy outcomes, in particular periods.
To read the paper click here
To read the slides, click here
WATCH THE SEMINAR
Topic: “Rules Versus Discretion: Decoding FOMC Policy Deliberations”
Start Time: October 16, 2024, 12:00 PM PT
