Cato Releases New Policy Analysis: A Comprehensive Evaluation of Policy Rate Feedback Rules
A new Cato Institute policy analysis is released today titled “A Comprehensive Evaluation of Policy Rate Feedback Rules.”
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The authors, Cato Vice President and director of the Center for Monetary and Financial Alternatives Norbert Michel and Research Fellow Jai Kedia, argue that Congress can greatly improve monetary policy by requiring the Federal Reserve to follow a policy rule.
Requiring the Federal Reserve to follow a policy rule would anchor the public’s expectations for monetary policy actions, improve economic outcomes, and increase accountability for both elected and appointed government officials. Properly structured, a policy rule would also provide Fed officials with the ability to change their stance, provided they give Congress a complete explanation of why they deviated from the rule.
The authors use empirical evidence to demonstrate that most commonly accepted monetary policy rules share a similar framework and that each has its own benefits and costs—that is, no one rule is better than all others. Therefore, any disagreements over which rule is best should not prevent Congress from requiring the Fed to adopt and follow one.
You can read the full analysis here. If you would like to speak with Kedia and Michel on this topic, please contact me to set up an interview.