Rule-like monetary policies lead to a non-inflationary consistently expansionary outcome

See NICE-Squared (Or TWICE NICE) by John Taylor. Excerpts:

"First, they found that simple steady-as-you-go, rule-like monetary policies would lead to a NICE outcome—that is a non-inflationary consistently expansionary, N-I-C-E, or NICE  outcome to use the term coined by Mervyn King.

Second, on the international side and even more surprising, they found that those same steady-as-you-go, rule-like monetary policies would also achieve most of the potential gains from international cooperation of monetary policy. And this would occur even if each central bank focused on its own country’s economic performance.  In other words the international monetary system would be NICE: near an internationally cooperative equilibrium, N-I-C-E, or NICE. One could say that the NICE system would help the world economy stay together during the NICE period.  Let’s just call it NICE-squared.

What is even more surprising is that the actual outcome in the years that followed—the  1980s, 1990s and until recently—seemed to bear out these NICE-squared predictions. As central banks moved toward more transparent, rules-based monetary policies—including through inflation-targeting—economic performance improved dramatically, especially compared with the 1970s, and an important step was when the Fed began to announce its federal funds target.

By choosing policies which worked well domestically, central banks contributed—in “invisible hand” like fashion—to better global economic conditions during this NICE-squared period. And toward the later part of this period, central banks in many emerging market countries began to move toward more rule-like policies.  As they did so, they began contributing positively to overall global monetary stability."

"What caused the end of the Nice-squared? Some say it was the financial crisis itself. Others say that international capital flows have exogenously become more volatile.

But the more obvious explanation is that monetary policy deviated from steady-as-you-go, rule-like policies of the NICE-squared period. Empirical research shows that such deviations in the United States and some other countries started about a decade ago when interest rates were held very low.  Researchers at the OECD and the BIS have detected a similar Global Great Deviation which is continuing to the present—especially when the large-scale unconventional central bank interventions are included."