• Why Discretionary Framework?

In a discretionary framework, policy-makers have wide latitude to design the best policy
response for the given circumstances.

• Discretionary policy focuses on short term and uses less predictable policies. It helps to
handle the momentary fluctuations in inflation and other variables without long term
strategy. 

• Discretionary monetary policy is needed because monetary policy must be flexible enough to
respond to unforeseen events such as a significant reduction in aggregate demand or a
negative supply shock.

• Furthermore, political business cycles may not exist and time inconsistency problems may be
avoided if a central bank’s announcements are credible. Finally, if monetary policy were to be
guided by a rule, it is unclear what type of rule Congress should impose.

• The correct way of thinking about issues in monetary theory and policy is not to work within
the fields only, but to include broader political-economy considerations as well.
 A rule does not allow judgement

• An instrument rule does not easily incorporate the use of judgement

• Monetary policy makers look at a wide range of information in order to decide on the best course
for monetary policy, and some of this information is not easily quantifiable.

• Judgement, which in its nature is discretionary, is thus an essential element of optimal monetary
policy