Question

What is the general case for preferring a monetary policy rule to discretionary monetary policy?

Answer 1

Discretionary monetary policy is not guided through the pre-determined rules and norms. While non-discretionary monetary policy follows rules and norms.

Rule based monetary Policy assumes that discretionary policy either excessively increase or decrease money supply in economy which leads to the inflation or recession in economy. further, monetary policy is motivated by political pressures.

Hence, rule based monetary policy is preferred over the discretionary monetary policy to stabilize economy and achieve objective of employments.