The objectives of monetary policy at the beginning of the 1990s were to reduce the rate of inflation to the average rate of inflation in trading partner and competitor countries; to manage the money creation process in such a way that an adequate, but not an excessive amount of new money would be supplied to the system; to maintain positive real interest rates; to increase the gold and other foreign reserves to a comfortable level and to develop a sound financial infrastructure consisting of healthy financial institutions and financial markets.
First, incipient monetary divergence could butt up against domestic or external limits. For example, the Fed could decide that dollar appreciation or deterioration of international conditions could detain U.S. economic recovery. 2  For the estimation of Taylor rules, see BIS (2015). “85th Annual Report, 1 April 2014–31 March 2015,” June, p. 92.