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July/August 2004, 
Vol. 86, No. 4
Posted 2004-07-01

The Role of Policy Rules in Inflation Targeting

by Kenneth N. Kuttner

The author notes that the view of inflation targeting as some sort of a monetary policy rule stems, in large part, from the fact that the adoption of it by many central banks and the explosion of research on monetary policy rules occurred at much the same time. He further notes that conditional rules allow the policymaker to respond in a reasonable (or even optimal) manner to economic conditions. Before empirically assessing the extent to which inflation targeting can be described in terms of simple monetary policy rules, the author undertakes a detailed and thoughtful analysis of important issues in the policy rule debate—ad hoc versus optimal policy rules, instrument rules versus targeting rules, rules describing outcomes versus rules based on commitment, and mechanical rules versus guidelines.





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