The bias towards inflationary measures that is sometimes held to characterize any monetary policy conducted according to the discretion of the policy-making body, as opposed to one governed by fixed pre-announced rules. Most obviously, where monetary policy is set by government a determination maintain price stability may be compromised by short-term electoral pressures, such as a desire to reduce unemployment. The wish to eliminate inflationary bias has been a major factor in the recent tendency for government to cede responsibility for monetary policy to independent central banks. However, some theorists maintain that the policies of the central bank will still have inflationary bias if they not constrained by mechanical rules (see rules versus discretion).
Subjects: Financial Institutions and Services.