In: Economics
why do people favor the rules-based monetary policy, not discretionary policies
Rules-based monetary policy - This type of
policy is created from the rules that guide the central bank to
work according to the rules and regulations. The central bank must
have to follow the rule-based policy. The supply of money changes
here according to the rules and guidelines.
Discretionary policies - It refers to the policies
which help the authority body (federal reserve in the US) to take
proper actions in any economic conditions. This type of policy is
based on the opinion of the policymaker and was preplanned.
People favor the rules-based monetary policy, not discretionary
policies because rules-based policies are more reliable and easy to
understand as it is based on some rules (guidelines). It is also
not based on the judgment or opinion of the policymakers that's why
people like this type of policy.
On the other hand, discretionary policies are not easy or
transparent as compared to rule-based monetary policies. People do
not favor this type of polices because it is based on the opinion
or views of policymakers.