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12 Cato J. 75 (1992-1993)
On Foot-Loose Prices and Forecast-Free Monetary Regimes

handle is hein.journals/catoj12 and id is 81 raw text is: ON FoOT-LOOSE PRICES AND FORECAST-FREE MONETARY REGIMES George A. Selgin The Choice of Monetary Regimes Leland Yeager says that predictions about human affairs can sel- dom be accurate. True as this may be in general, it did not stop me from anticipating parts of his paper. I expected new arguments in defense of his favorite scheme for price-level stabilization, and that is what I got.' Nor do I believe that my forecasting ability is unique; Yeager is unlikely to be surprised by much of what I intend to say in reply. Perhaps one or both of us is guilty of having rigid beliefs, or at least of having beliefs that adjust sluggishly. Unfortunately for the conduct of monetary policy, the folks at the Federal Reserve cannot rely on any similar rigidity in the social world. For this reason, I fully concur with Yeager's suggestion that our present forecast-dependent monetary regime should be replaced by some forecast-free alternative. The question is What alterna- tive? Yeager champions a particular stable price-level (P) regime; I, in contrast, have argued for a productivity-norm or stable money- income (MV) regime. Much of Yeager's paper is devoted to showing that his favorite regime is better than my favorite regime. Actually, I may be the only living proponent of an MV regime. Sweden's David Davidson, the only other MV-regime advocate men- tioned by Yeager, died long ago. It seems, therefore, that Yeager has employed a sledge hammer to swat a fly. But has the fly been swatted? I say it has not. For although Yeager succeeds here and there in showing that an MV regime is not under all circumstances clearly superior to a F regime, he fails to provide a single instance in which Cato journal, Vol. 12, No. 1 (Spring/Summer 1992). Copyright @ Cato Institute. All rights reserved. The author is Assistant Professor of Economics at the University of Georgia. 'Admittedly, I had some inside information in the form of an earlier manuscript by Yeager containing some of the same arguments as the paper published here. 75

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