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Summary of Remarks made by Governor Edward M Gramlich The Samuelson Lecture before the 24th Annual Conference of the Eastern Economic Association New York New York February 27 1998 In this speech Governor Gramlich addresses the issues that arise when the question of whether the Federal Reserve Board should use rules in the conduct of monetary policy is contemplated He tells how the Fed once based policies on monetary aggregates and that now many suggest they base them on the federal funds rate The Fed currently votes on monetary policy based on the judgement of its members There are several different types of policy rules he discusses The first is an unconditional rule for example having monetary authorities increasing the money supply a certain percentage each year or base a rule on some target objective such as rigid prices and reduce the inflation rate to a certain level Another intermediate approach could be called a feedback rule Using this approach policy objectives are specified in the rule and authorities would react in a regular way to the discrepancies between actual values and the target levels of these variables Rules also vary in how restricting they are They can be as extreme as being mandated by Congress or self-imposed Either way they can include exceptions for special circumstances It is also possible for the rules to be simple and informal in order to guide some of the members in their votes There are numerous advantages and disadvantages for rules A disadvantage of the rules is that they must be oversimplified and authorities do not benefit from them Also there are several monetary objectives that conflict with one another Rules based on one objective may oppose the intentions of another rule Sometimes rules may not work or work only under certain circumstances There are also some benefits to rules One is that policy is clear regular and consistent Rules can
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