mr reddy gives a valedictory address with concluding remarks on flexibility, autonomy and the regulatory refocus in banking valedictory address by dr y v reddy, deputy governor of the reserve bank of india, at the conference of chairmen of banks at nibm, pune, on 7 january 2000. * * * at the outset, i am thankful to the institute for giving me an opportunity to be here and share the experiences and be a witness to the variety of sentiments and ideas. there is no prepared valedictory address ; and i deliberately decided not to have one, so that i can share with you my perception of what happened in this conference and incidentally make a few comments. this is a somewhat risky path for a central banker, especially with the press being here. but, by and large, the press has been fair and, i, therefore, continue to trust them. this is not a machiavellian comment where “ gratitude is only hope of benefits to come ”. it is a pretty straightforward and genuine comment. the background papers have been excellent, and they really provide an overview of both the theory and practice, as of today. inaugural session for convenience, in this valedictory address, i will go session by session. mr bhide, in his broad overview, referred to the bhagwad geeta and how arjuna was confused and sought krishna ’ s advice. perhaps krishna is the most ancient consultant that we have. he never fought a war, but he always advised. in fact, he offered his advice to both the parties and as some say, even managed to see that they quarrel. anyway, certainly the type of problems that we have are complicated and it does require substantial input of expertise and international experience to solve them. from the reserve bank of india, we are also in a similar search as arjuna, and i can almost visualise that arjuna who fought the war must have known how difficult it is to operationalise an advice. that there could be problems in actual implementation was evident from the response of the chairmen present here, to various ideas. dr ganti subrahmanyam noted that this conference is being held after 10 years. as you are aware, substantial reform has occurred in the financial sector in the last 9 to 10 years. obviously we have had to undertake a lot of day to day fire - fighting as we moved ahead in the reform process. perhaps now, it is about time we really looked at the reform

implications of alternative rules for economic outcomes have, for many years, been a regular part of the briefing materials that go to policymakers before each fomc meeting, allowing policymakers to incorporate these prescriptions into their thinking and discussions. 10 a third message of mccallum ’ s work on rules was that there were merits in actual policy following “ rule - like ” behavior. 11 he recognized that policy rules were not likely to be used literally or mechanically as a means of deciding on monetary policy actions. even so, mccallum believed that rules provided information about the responses to the state of the economy that were likely to be associated with more successful see mccallum ( 1980, p. 725 ). see, most recently, the box “ monetary policy rules in the current environment ” in board of governors ( 2023, pp. 44 – 46 ). examples of such materials can be found in the publicly available tealbooks ( through 2017 ), which are provided on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomc _ historical. htm. see mccallum ( 1980, 1999a ). - 8policymaking. according to this reasoning, the prescriptions coming from policy rules provide valuable benchmarks. as mccallum put it, “ actual central banks are unlikely to officially adopt such rules, of course, but consideration of their implications could nevertheless prove helpful in practice. ” 12 mccallum also noted that this idea was strongly advanced by john taylor in his 1993 paper introducing the taylor rule. 13 it ’ s worth looking at some features of the taylor rule, as this will help bring out the connections between the policy rules literature and federal reserve practice. my discussion of these features will underline the fact that it is today widely accepted that the predictability of policymakers ’ reaction function strengthens the stabilizing properties of monetary policy. in that sense, policymakers understand the value of making decisions in “ rule - like ” ways. first, i will discuss the taylor rule formula ’ s left - hand side — its specification of the instrument. i will then turn to its right - hand side — the target variables to which the instrument responds. the monetary policy instrument as mccallum observed, “ taylor ’ s paper ( 1993 ) succeeded brilliantly in interesting central bankers in the consideration of rule - guided policy making. ” 14 in particular, taylor ’ s article helped bring monetary policy research into better