http://post.economics.harvard.edu/faculty/mankiw/papers/mp90-2.pdf

In May 1964 the Journal of Finance published a short paper by a young economist named Alan Greenspan. It was called "Liquidity as a Determinant of Industrial Prices and Interest Rates." Greenspan began his summary of the paper as follows: "I have endeavored to integrate several theoretical approaches to the forecasting of prices, with special emphasis on its relation to interest rates." The paper was a sign of things to come in several ways.

First, and most obviously, it showed Greenspan's early interest in liquidity, inflation, and interest rates – topics that are the essence of monetary policy. Second, the paper demonstrated his interest in looking intensely at the data to try to divine upcoming macroeconomic events. According to all staff reports, this has also been a hallmark of his time at the Fed. Third, the desire to integrate various points of view shows a lack of dogma and nimbleness of mind. Without doubt, these traits have served Greenspan well in his role as Fed chairman. They have made it easier to get along with both Republican and Democratic administrations and to forge a consensus among openmarket committee members with their differing theoretical perspectives. They have also made it easier for him to respond to economic circumstances that are changing, unpredictable, and sometimes inexplicable even after the fact. But there may also be a fourth, less favorable way in which Greenspan's paper presaged the author's later career : It left no legacy. (…)

This raises the question of whether the monetary policy of the 1990s faces a similar fate. Will Greenspan's tenure as Fed chairman leave a legacy for future monetary policymakers, or will the successful policy of the Greenspan era leave office with the man himself ?

Imagine that Greenspan's successor decides to continue the monetary policy of the Greenspan era. How would he do it ? The policy has never been fully explained. Quite the contrary : The Fed chairman is famous for being opaque. If a successor tries to emulate the Greenspan Fed, he won't have any idea how. The only consistent policy seems to be : Study all the data carefully, and then set interest rates at the right level. Beyond that, there are no clearly stated guidelines.

There is a great irony to this. Conservative economists like Milton Friedman have long argued that discretionary monetary policy leads to trouble. They claim that it is too uncertain, too political, and too inflationary. They conclude that monetary policymakers need to be bound by some sort of monetary policy rule. This argument is the economic counterpart to John Adam's famous aphorism that "we are a nation of laws, not of men."

These views, together with the great inflation of the 1970s, have influenced central banks around the world. Although no country has yet replaced its central bankers with computers programmed to an automatic monetary rule, as the most extreme critics suggest, there has been movement away from giving central bankers unconstrained discretion. During the 1990s, many nations adopted some form of inflation targeting. In essence, inflation targeting is a commitment to keep inflation at some level or within some narrow range. It can be viewed as a kind of soft rule, or perhaps a way of constraining discretion. Despite this environment, and the fact that a prominent conservative headed the U.S. central bank, the Fed during the 1990s avoided any type of commitment to a policy rule. Conservative economists are skeptical about policies that rely heavily on the judgments of any one man. But that is how monetary policy was made over this decade, and it was hailed as a success by liberals and conservatives alike.