This chapter appraises strategies for conducting monetary policy with the objective of evaluating how these strategies are likely to work in the real world of policymaking. The chapter examines policies that are tied to a specific channel of monetary policy (money supply targeting, interest-rate targeting, and forward guidance) and strategies that are not directly tied to a specific channel of monetary policy (inflation targeting, nominal income targeting, and quantitative easing). The strategies are evaluated in terms of the strength of theory on which they are based and their practicality. From this perspective, many of these strategies seem much less feasible than when they are evaluated in the context of abstract and highly stylized economic models. The chapter ends with a new approach to conducting monetary policy—economic reality-based monetary policy—that will make policy more effective and more predictable.
Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty
