Nominal income rules for monetary policy have long been debated, but two issues are of particular recent interest. First, there are questions about the performance of such rules over a range of plausible empirical models---especially models with and without rational inflation expectations....

In this paper, we consider whether monetary policymakers should adjust short-term nominal interest rates in response to inflation and output forecasts rather than to recent outcomes of these variables. The use of forecast-based rules has been advocated on the basis of transmission lags and other...