 मूनूटी पालएची, रूलच़, बचास, दिसक्रीष्यन. तूँडन्त साभ जांते हैं के मूनूटी पालीची के बारे में कंटूवर्सी मوجود है, खलासिकल्स में और केंच में, के क्या मूनूटी पालीची को यूज करना चाहिये, इकोनमी को मैंनेच करने के लिए यह नहीं करना चाहिये. तो आज हम इस पर बात करेंगे, यह एक दिबेट है कि क्या, monetary policy should be followed by rules or by discretion. इस पर हम बात करतें, the conduct of monetary policy rules versus discretion. Monetists and classical macroeconomists advocate the use of rules. Rules make monetary policy automatic as they require the central bank to set policy based on a set of simple, pre-specified and publicly announced rules. Examples क्या है, rules की कि अफाँ एक लिए हो सकता है, के increase the monetary based by 1% each quarter. एक यह simple rule हो सकता है, the 2nd rule हो सकता है के maintain the price of gold at a fixed level. So, the rule should be simple. There should not be much leeway for exceptions. The rule should specify something under the control of the central bank, like the growth of the monetary based, not something like fixing the unemployment rate, for example at 4%, over which the central bank has little control. The rule should be simple and the rule should be based on the things that are in the control of the central bank. For example, the monetary base can be effectively controlled, so the rule should be based on this. If the rule is not that we have to maintain the unemployment at a particular level, it is obvious that it is not in the control of the central bank, so the rule will not be effective. The rule may also permit the central bank of Pakistan to respond to the state of the economy. The rule can also be maintained that the state of the economy should be responded accordingly. But whatever the rule is, it should be pre-specified. It is not that when the state is there, it should be decided at that time. It should not be a discretion. It should already be determined as a principle according to which the rule should be worked. Do you know Keynesian? They favor discretion instead of the rule. Discretion means the central bank looks at all the information about the economy. And uses its judgment as to the best course of policy. That it should evaluate the economy and assess its situation. And according to that, it should use its discretionary powers to form a monetary policy. Discretion gives the central bank the freedom to stimulate or contract the economy when needed. It is thus called the Activate Policy. In the context of discretion, the central bank has the opportunity to stimulate or contract the economy. What is the policy? It is suitable. Since discretion gives the central bank the way to act while rules constrain its behavior, why would anyone suggest that the central bank follows the rules? When apparently we feel that in the context of discretion, the central bank has the flexibility to make a monetary policy according to the situation of the economy so that the economic requirement can be met. What is the objective? To keep prices stable, maintain growth rate, and not to increase unemployment rate to a certain level. These are the objectives of the economic situation. If the central bank has the discretion to make a policy according to the situation, then what is the harm in this? Why is the rule talked about? According to the rule, the classical and especially monetists favor it very strongly. And the leading economists in the monetists, you must have heard of Milton Friedman. He thinks that the monetary policy is very important. And in the long run, there is no disagreement that in the long run, it only affects nominal variables, not real variables. But in the short run, the monetists believe that it also affects real variables. That is why it should be used with great care. This economy can be very disturbed if you take it wrongly or adequately if you do not use it. So, they believe that this is a very important policy and that is why it should be based on the rule. So, the rule, as I said in the beginning, is a simple rule. So, it is possible that 1% should be increased in each quarter. There is a very famous Taylor rule that we will talk about today. Taylor rule is that nominal interest rate is equal to the inflation rate plus 0.02. This is the question. Plus 0.5 Y plus 0.5 inflation rate minus 0.02. So, I is the nominal policy rate. Pi is the inflation rate over the last four quarters. And Y is the percentage deviation of output from the full employment level. I is the nominal interest rate. Inflation rate. And Y is the deviation from the full employment level. So, the rule works by having the real policy rate. This was the nominal interest rate minus inflation rate. So, the difference will be real policy rate. So, it responds to the Y. Y was defined as the difference between the output and the full employment level of output. And it responds to the inflation target. If you have a 2% target of inflation rate, then it will respond to the inflation rate more than that. So, if either Y or inflation increases in the economy, if you have a Y or a full employment level, or inflation is more than that, your target level is more than that, the real policy rate is increased causing monetary policy to Titan. So, the real policy rate will increase, real policy rate and monetary policy will be tight. And vice versa.