Central bank rules in historical perspective

Abstract

This article explains that, while Walter Bagehot׳s Lombard Street had a rule about the central bank׳s role as a lender of last resort, it was not a precursor of the rules-based approach to monetary policy. Monetary policy rules came into fashion in the 1980s and 1990s when it became clear from the 1970s just how dangerous discretion could be. Under different historical circumstances before that and in more recent times, it was rules that seemed much inferior to discretion.