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



George S. Tavlas
Bank of Greece and the Hoover Institution, Stanford University

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.   

Keywords: monetary policy rules, Chicago monetary tradition, Irving Fisher, Henry Simons, Lloyd Mints, Milton Friedman

JEL-classifications: B22, E52

Acknowledgements: For encouragement and inspiration, I am grateful to Thomas Humphrey. I thank Harris Dellas, Samuel Demeulemeester, John Taylor, and Michael Ulan for many helpful suggestions. I also thank Elisavet Bosdelekidou and Maria Monopoli for research assistance.

Correspondence:
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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