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A RECONSIDERATION OF THE DOCTRINAL FOUNDATIONS OF MONETARY POLICY RULES: FISHER VERSUS CHICAGO

Published online by Cambridge University Press:  22 February 2021

George S. Tavlas
George S. Tavlas*
Affiliation:
Bank of Greece and the Hoover Institution, Stanford University.
*
Correspondence may be addressed to George Tavlas, Bank of Greece, 21 E Venizelos Ave, Athens, 10250, Greece, Tel. no. +30 210 320 2370; Fax. no. +30 210 320 2432. Email address: gtavlas@bankofgreece.gr.
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Abstract

There has long been a presumption that the price-level stabilization frameworks of Irving Fisher and Chicagoans Henry Simons and Lloyd Mints were essentially equivalent. I show that there were subtle, but important, differences in the rationales underlying the policies of Fisher and the Chicagoans. Fisher’s framework involved substantial discretion in the setting of the policy instruments; for the Chicagoans the objective of a policy rule was to tie the hands of the authorities in order to reduce discretion and, thus, monetary policy uncertainty. In contrast to Fisher, the Chicagoans provided assessments of the workings of alternative rules, assessed various criteria—including simplicity and reduction of political pressures—in the specification of rules, and concluded that rules would provide superior performance compared with discretion. Each of these characteristics provided a direct link to the rules-based framework of Milton Friedman. Like Friedman’s framework, Simons’s preferred rule targeted a policy instrument.

Type
Articles
Information
Journal of the History of Economic Thought , Volume 43 , Issue 1 , March 2021 , pp. 55 - 82
Copyright
© The History of Economics Society, 2021

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Footnotes

For encouragement and inspiration, I am grateful to Thomas Humphrey. I thank the editor, Pedro Duarte, and two referees, for constructive comments. I also thank Harris Dellas, Samuel Demeulemeester, Ed Nelson, John Taylor, Richard Timberlake, and Michael Ulan for many helpful suggestions. I also thank Elisavet Bosdelekidou and Maria Monopoli for research assistance.

References

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