The first-difference rule, like the inertia rule, links the present value of the federal funds rate to its past value. One feature of this rule is that it does not require information on the value of the long-term neutral real policy rate or the level of output at full resource use. Instead, under the first-difference rule, the prescribed change in the federal funds rate depends only on inflation and output growth.6 Proponents of this rule point out that the neutral long-run real federal funds rate and the level of GDP associated with full resource utilization are unobserved variables that are likely to change over time. time and which are estimated with considerable uncertainty. Given these difficulties, they prefer rules such as the first difference rule, whereby revenues to change the federal funds rate do not depend on estimates of unobserved variables.7 Moreover, these proponents pointed out that the first-difference rule, similar to the other rules, stabilizes economic fluctuations so that inflation moves closer to its target over time and output converges. towards a certain level. that is compatible with the full use of resources. This characteristic reflects the fact that the first-difference rule corresponds to the fundamental principles of sound monetary policy discussed in the principles governing the conduct of monetary policy; In particular, it calls for the policy rate to be raised by more than one in response to a sustained rise in inflation over time. In light of these considerations, I recommend that the Fed regularly publish a quarterly monetary policy report to better explain its actions and forecasts. Reports like these are often published by other central banks around the world.

The information contained in the report could be organized around the recommendations of a standard set of monetary policy rules. This could improve the monetary policy debate in the United States by focusing more on comparing real monetary policy with the recommendations of standard monetary policy rules. If you need a logical OR between multiple constraints, simply reformulate them into multiple policy rules. Each of the policy rules is triggered individually, so a logical OR operation is implemented. They say there is always an exception to every rule. Whether this is the truth or not, it is often necessary to make an exception to a political rule. A common use case is an exception to the segregation of duties policy: the policy states that certain roles cannot be combined. However, if the application goes through a special permit, it can be approved. This may seem like a simple mechanism. But this is not the case. It is not enough to simply ignore the directive and allow conflicting roles to be assigned. Such an assignment then appears in each review, compliance report, the approver is prompted to be re-approved after a minor change to the task, etc.

It is necessary to recall the decision to fully support this scenario: to create an exception. Because the U.S. economy is complex and incomplete, Fed policymakers have different views on some of the details about how monetary policy works and how the federal funds rate should be adjusted most effectively to promote maximum employment and price stability. These different views are reflected in the economy in general and in alternative formulations of political rules. All of this means that if you tell a group of serious, knowledgeable people that they should set policy rates according to a simple rule, they could very well give very different numbers, thus limiting the informative value of a comparison with the original Taylor rule. To get an idea of the difference between the responses, we used the Atlanta Federal Reserve`s new Taylor rule and calculated the implicit level of the federal funds rate under various assumptions. We adjust four variables: we measure the output gap either in terms of GDP or unemployment (for the unemployment rate, the coefficient is twice as high as for GDP); we measure inflation using the total or base PGE excluding food and energy; we include cases where the real natural interest rate (R*) is either equal to 2 (as in the FORM Act) or follows the estimates of Laubach and Williams; Finally, we allow the output gap coefficient to be 1/2 or 1. Some of these parts may be implied. For example, if the rule is defined as a higher-order inducement in the metarole, then the focal object or target is implicit and does not need to be explicitly specified.

In other words, the law allows the FOMC to determine that macroeconomic and financial stability objectives are best served by departing from the policy rule published (and reviewed by the GAO) due to changing circumstances. In other words, as long as they explain themselves, decision-makers can deviate from the rule. 1. Taylor`s rule was proposed in John B. Taylor (1993), „Discretion versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy, Vol. 39 (December), p. 1.