The monetary policy rules that are widely discussed--notably the Taylor rule--are remarkable for their simplicity. One reason for the apparent preference for simple ad hoc rules over optimal rules might be the assumption of full information maintained in the computation of an optimal rule....

This paper analyzes the optimality of reactive feedback rules advocated by neo-Keynesians, and constant growth rules proposed by monetarists. The basis for this controversy is not merely a disagreement concerning sources and impacts of uncertainty in the economy, but also an apparent fundamental...