Recent Development in the Use of Monetary Policy Rules

It is an honor to speak at this Bank Indonesia conference on monetary policy. Thank you for inviting me, and thank you for asking me to talk about monetary policy rules, a subject that has been of great interest to me for nearly thirty years.

Economic research on the use of monetary policy rules has expanded remarkably rapidly in the past two or three years. It is difficult for me to keep track of all that is going on, though the World Wide Web is a real help. In my view, a number of important and useful results have emerged from this research and are worthy of special attention by monetary policy makers in both emerging and more developed economies. In reviewing some of these results in this speech, I will place emphasis on inflation targeting in emerging economies, the main topic of this conference. There is an interesting symbiotic relationship between inflation targeting and monetary policy rules. I will also touch on other policy issues that are important in emerging market economies, including the robustness of policy rules in different economic and financial environments, the role of the exchange rate, the use of forecasts, the problems of uncertainty about potential GDP, and reacting to financial market crises.