National Economists Club

When I speak about monetary policy at occasions like this one, more often than not the focus of my remarks is on recent policy actions or the near-term outlook. However, just as good tactics are useful only insofar as they serve a larger strategic purpose, so individual policy decisions are best understood in the context of an encompassing policy framework. Today I would like to step back a bit from current policy concerns to address the broader topic of the logical framework within which monetary policy is made. Specifically, I will introduce and briefly discuss two competing frameworks for making monetary-policy decisions, each of which has vigorous proponents among leading monetary economists, and I will relate these frameworks to policy practice at the Federal Reserve. In the latter portion of my remarks I will argue that the choice of policy framework has important practical implications, most notably for the communication policy of the central bank. Before proceeding further, I should say that the views I will express today are my own and are not necessarily shared by my colleagues in the Federal Reserve System. 1 Car and Driver: A Misleading Analog