What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules

摘要

This paper starts from the observation that most recent research on monetary-policy rules is restricted to consider a commitment to a simple instrument rule, where the central-bank instrument is a simple function of available information about the economy, like the Taylor rule. Alternatively, as proposed by Taylor, for instance, in (1993, 2000), the proposed simple instrument rules are only to be used as "guidelines" and deviations from the rules are sometimes called for. The paper argues that a commitment to a simple instrument rule is inadequate as a description of current monetary policy, especially inflation targeting. Furthermore, it argues that the proposal to use simple instrument rules as mere guidelines is incomplete and too vague to be operational. First, monetary-policy reform in the last two decades is better described as the formulation of clear objectives for monetary policy and the creation of institutional commitment to those objectives. Second, inflation-targeting central banks have developed elaborate decision-making processes, in which huge amounts of data are collected and processed, conditional inflation- and output-gap forecasts are constructed with the exercise of considerable judgment and extra-model information, and an instrument decision is reached with the help of those forecasts. This process can to a large extent be seen as inflation-forecast targeting, setting the instrument so that the cor- responding conditional inflation forecast, conditional on all relevant information and judgment, is consistent with the inflation target and the output-gap forecast not indicating too much output-gap variability. Third, no central bank has made an explicit commitment to a simple instrument rule. Instead, some prominent current and former central bankers seem highly skeptical about the idea. Neither has any central bank announced that a particular simple instrument rule is used as a guideline. Fourth, the proposal to use instrument rules as guidelines is incomplete and too vague to be operational, since it does not provide any rules for when deviations from the rule are appropriate.