Monetary policy analysts often rely on rules of thumb, such as the Taylor rule, to describe historical monetary policy decisions and to compare current policy with historical norms. Analysis along these lines also permits evaluation of episodes where policy may have deviated from a simple rule...

This article is a revised English translation of the Thunen Lecture, given at the Annual Congress of the Verein fur Socialpolitik, September 29, 2004, in Dresden, Germany.