Monday, June 30, 2008

McCallum's 4 Principles (amv)

McCallum's four principles that should be respected in the design of a monetary rule (1987):

1. The rule should dictate the behaviour of a variable that the monetary authority can control directly and/or accurately. (That's obvious)
2. The rule should not rely in any essential way upon the presumed absence of regulatory changes and technical progress in financial industry.
3. Neither money stock nor nominal interest rate paths are important for their own sake; these variables are relevant only to the extent that they are useful in facilitating good performance in terms of inflation and output or employment magnitudes.
4. A well-designed rule should recognize the limits of macroeconomic knowledge.