Stabilization, Accommodation, and Monetary Rules

A central feature of the monetarist approach to the problem of inflation is a preannounced gradual reduction in monetary growth. This reduction is to be sustained until a monetary growth consistent with a zero, or an acceptably low, target rate of inflation is reached. Thereafter, monetary growth is to be held constant at this new rate. The specifics of this prescription differ by the type of monetary measure used for calculating growth rates-either highpowered money, a monetary aggregate, or nominal GNP-and by the length of the transition period during which the noninflationary growth is approached.' The prescriptions are alike in ruling out contingent deviations from the plan should economic conditions change, either during the transition period or after the beginning of the constant growth rate rule. The plans are rigid, having no explicit contingencies. This rigidity has been the target of most critiques of monetarism. Stressing the inefficiencies which a noncontingent monetarist rule would entail, many economists have pointed out the advantages of alternative rules which react to economic events in a structured and stable way. Stanley Fischer and J. Phillip Cooper showed, through a series of examples, that these inefficiencies of monetarist rules exist even when lags are long and variable.