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How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson

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  • Franz Seitz
  • Karl-Heinz Tödter

Abstract

In this comment, we answer the question posed in Svensson's (2000) paper 'Does the P* Model Provide any Rationale for Monetary Targeting?'- in contrast to him -- in the affirmative. We argue that a strategy of monetary targeting can be rationalized within the P* framework. Furthermore, we demonstrate that money growth targeting is a special form of inflation forecast targeting based on a 'limited' information set. In contrast to 'full information' inflation forecast targeting, monetary growth targeting is likely to be more robust under changing conditions of the real world. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 2 (2001)
Issue (Month): 3 (08)
Pages: 303-308

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Handle: RePEc:bla:germec:v:2:y:2001:i:3:p:303-308

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References

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  1. Robert J. Tetlow & Peter von zur Muehlen, 1999. "Simplicity versus optimality the choice of monetary policy rules when agents must learn," Finance and Economics Discussion Series 1999-10, Board of Governors of the Federal Reserve System (U.S.).
  2. Svensson, L.E.O., 1999. "Does the P* Model Provide any Rationale for Monetary Targeting," Papers 671, Stockholm - International Economic Studies.
  3. Rudebusch, Glenn & Svensson, Lars, 1999. "Eurosystem Monetary Targeting: Lessons from U.S. Data," Seminar Papers 672, Stockholm University, Institute for International Economic Studies.
  4. Michael Scharnagl, 1998. "The stability of German money demand: Not just a myth," Empirical Economics, Springer, vol. 23(3), pages 355-370.
  5. Orphanides, Athanasios & Porter, Richard D., 2000. "P revisited: money-based inflation forecasts with a changing equilibrium velocity," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 87-100.
  6. Kai Leitemo, 2006. "Open-Economy Inflation-Forecast Targeting," German Economic Review, Verein für Socialpolitik, vol. 7, pages 35-64, 02.
  7. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(2), pages 273-289, June.
  8. Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
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Citations

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Cited by:
  1. Lars E. O. Svensson, 2001. "Response to Seitz and Tödter, 'How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson'," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 309-312, 08.
  2. Petri Mäki-Fränti, 2007. "The information content of the divisia monetary aggregates in forecasting inflation in the euro area," Empirical Economics, Springer, vol. 33(1), pages 151-176, July.
  3. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.

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