Foundations of Economics, 8th Edition

33.3 Alternative Monetary Policy Strategies

MyEconLab Concept Video

We’re going to end our discussion of monetary policy by examining alternative strategies that the Fed might have chosen, and that some economists believe would improve macroeconomic outcomes. All the possible monetary policy strategies can be placed in two broad categories: discretionary and rule-based.

The Fed’s monetary policy is discretionary. A central bank that pursues a discretionary monetary policy sets its policy instrument at the level it believes will best achieve its mandated policy goals. To make its interest rate decision, the FOMC gathers and analyzes a vast amount of data and comes to a judgment about the level that will best achieve price stability and full ...