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Transitional representation between the Discretion Policies verses Policy Rules

Transitional representation between the Discretion Policies verses Policy Rules

There have been questions on how to make a transition from one policy to another, that is, either a transition from discretion policy to policy rules and vice versa. This explains that economists have just been good at determining the system that works best but rather not how transition of the systems.

Transition is effected and needed in a situation when it becomes clear that a policy is performing poorly and that a new system of policy is regarded that it would work much better. This is the phenomenon that leads to transition. For example, suppose that the target rate of inflation in the policy rule is identified to be too high. Rather than aiming at a 5% inflation rate per year, it is recognized much more targeting a 2% inflation rate per year would be much better in long run economic performance.

In the transition process, only the intercept term is changed since the problem of transition is none other than the disinflation problem. The transition between the discretion policy and policy rule is therefore diagrammatically represented as below during analogous monetary policy intercept budget recognition.

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Transitional representation between the Discretion Policies verses Policy Rules

There have been questions on how to make a transition from one policy to another, that is, either a transition from discretion policy to policy rules and vice versa. This explains that economists have just been good at determining the system that works best but rather not how transition of the systems.

Transition is effected and needed in a situation when it becomes clear that a policy is performing poorly and that a new system of policy is regarded that it would work much better. This is the phenomenon that leads to transition. For example, suppose that the target rate of inflation in the policy rule is identified to be too high. Rather than aiming at a 5% inflation rate per year, it is recognized much more targeting a 2% inflation rate per year would be much better in long run economic performance.

In the transition process, only the intercept term is changed since the problem of transition is none other than the disinflation problem. The transition between the discretion policy and policy rule is therefore diagrammatically represented as below during analogous monetary policy intercept budget recognition.

"Get 15% discount on your first 3 orders with us"
Use the following coupon
FIRST15

Order Now

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