As their names suggest, rules-based instruments are activated according to some triggering rule, informed by indicators of systemic risk. Such rules act as a safeguard against forbearance and the policymaker’s inability to fully anticipate the timing and magnitude of policy effects (Friedman, 1948) and the reactions of market participants (Kydland and Prescott, 1977). However, rules are difficult to design.
"Housing is the Business Cycle", in Housing, Housing Finance, and Monetary Policy, proceeding of a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 30 to September 1, pp. 149-233. Lui, Jun, and Francis A. Longstaff (2004), "Losing Money on Arbitrage: Optional Dynamic Portfolio Choice in Markets with Arbitrage Opportunities", Review of Financial Studies, vol. 17(3), pp. 611-641.