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Article

Commitment Versus Discretion in Monetary Policy

Michael Dotsey

Emeritus Economist

Q4 2008

Business Review — Whether policymakers should commit to a certain course of action or have the flexibility to approach each situation as it arises continues to be a central question in the design of monetary policy.

A seminal article written by two prominent economists in 1977 analyzed the benefits of carrying out plans based on commitment rather than discretion. Since then, others have joined the debate. In this article, Mike Dotsey elaborates on the merits of commitment versus discretion in setting monetary policy.

This article appeared in the Fourth Quarter 2008 edition of Business Review.

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