On the theory of interest rate policy

From: Banca Nazionale del Lavoro Quarterly Review | Date: December 1, 2001| Author: | Copyright information

On the theory of interest rate policy*

1. Introduction

Some years ago, John B. Taylor (1993) found out that U.S. monetary policy since the 1980s could be explained by a simple and stable interest rate rule: rates were raised when inflation accelerated, and were lowered when growth fainted. This discovery might not appear noteworthy as central banks in public opinion are supposed to react to inflation and unemployment. But modern theory of monetary policy taught that central banks should refrain from responding to missed targets in a discretionary style; moreover, linking the change of ...

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