A recent paper published by the Norges Bank estimates two specifications of monetary policy, using a simple instrument rule and an optimal policy model, and finds the empirical fit of the model with optimal policy is as good as the model with a simple rule.

The purpose of the paper is to compare the empirical merits of different approaches to modelling monetary policy within the context of a dynamic stochastic general equilibrium (DSGE) model. In most DSGE models, the central bank is assumed to