Economic Quarterly

This article conducts counterfactual historical analysis of several monetary policy rules by contrasting actual setting of instrument variables with values that would have been specified by the rules in response to prevailing conditions. Of particular interest is whether major policy mistakes, judged ex post, would have been prevented by candidate rules. The rules studied include those of Taylor and McCallum, previously considered by Alison Stuart, plus several additional combinations of instrument and target variables. The time spans examined are 1962–1998 for the United States and United Kingdom, and 1972–1998 for Japan. In addition to various substantive findings, the paper develops several methodological arguments. A surprising result is that rules’ messages are evidently more dependent upon the specification of their instrument than their target variable.