In the aftermath of the nancial crisis, the role of monetary policy and macro-prudential regulation in promoting nancial stability is under discussion. The old debate concerning whether monetary policy should respond to credit and asset price bubbles was revived, whereas macro-prudential regulation is being assessed as an alternative macroeconomic tool to deal with nancial imbalances. The paper...

HOULD MONETARY POLICY be determined by a legislated rule or by a monetary authority’s discretion? Henry Simons (1936) first raised this issue as a choice between rules and authorities, terms little different than those used in recent discussions. He stresses the value of a rule, such as a law, instead of reliance on an authority’s discretion because “definite, stable, legislative rules of the g...