If the policy rule were lined up precisely on the equilibrium real interest rate and if the output gap were calibrated correctly relative to potential output, the benefits from monitoring money growth might be limited to its early signal of changes in output and inflation.
But recent experience, along with the earlier experience of the 1970s, suggests that uncertainty about the real equilibrium interest rate and about the level of potential output makes implementing the policy rule challenging. Just as modelbased forecasters often look at forecasts from VARs, so policymakers under a policy rule might benefit from a second check provided by a money-growth reference value.