This paper compares the properties of interest rate rules such as simple Taylor rules and rules that respond to price-level fluctuations - called Wicksellian rules - in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better than...

Under rational expectations, monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure: Anticipated movements in future short-term interest rates control current demand. This paper...