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September/October 2005, 
Vol. 87, No. 5
Posted 2005-09-01

Targeting versus Instrument Rules for Monetary Policy

by Bennett T. McCallum and Edward Nelson

Svensson’s (2003) argument that targeting rules are normatively superior to instrument rules for conducting monetary policy is based largely on four main objections to the latter, plus a claim concerning the relative interest-instrument variability entailed by the two approaches. We advance arguments that contradict his objections and discuss general targeting rules and actual central bank practice.

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