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Quantitative Goals for Monetary Policy

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Author Info
ANTONIO FATÁS
ILIAN MIHOV
ANDREW K. ROSE

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Abstract

We study empirically the macroeconomic effects of an explicit "de jure" quantitative goal for monetary policy. Quantitative goals take three forms: exchange rates, money growth rates, and inflation targets. We analyze the effects on inflation of both having a quantitative target and hitting a declared target. Our empirical work uses an annual data set covering 42 countries between 1960 and 2000, and takes account of other determinants of inflation (such as fiscal policy, the business cycle, and openness to international trade) and the endogeneity of the monetary policy regime. We find that both having and hitting quantitative targets for monetary policy is systematically and robustly associated with lower inflation. The exact form of the monetary target matters somewhat (especially for the sustainability of the monetary regime) but is less important than having some quantitative target. Successfully achieving a quantitative monetary goal is also associated with less volatile output. Copyright 2007 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2007.00061.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): 5 (08)
Pages: 1163-1176
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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:5:p:1163-1176

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Laurence M. Ball & Niamh Sheridan, 2003. "Does Inflation Targeting Matter?," IMF Working Papers 03/129, International Monetary Fund. [Downloadable!]
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  3. Persson, Torsten & Tabellini, Guido, 2001. "Political Institutions and Policy Outcomes: What are the Stylized Facts?," CEPR Discussion Papers 2872, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May. [Downloadable!] (restricted)
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  5. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany. [Downloadable!]
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  7. Frederic S. Mishkin, 1999. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 6965, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Marta Campillo & Jeffrey A. Miron, 1996. "Why Does Inflation Differ Across Countries?," NBER Working Papers 5540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Baxter, M. & Stockman, A.C., 1988. "Business Cycles And The Exchange Rate System: Some International Evidence," RCER Working Papers 140, University of Rochester - Center for Economic Research (RCER).
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  13. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
  14. repec:rus:hseeco:181565 is not listed on IDEAS
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  17. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  18. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May. [Downloadable!] (restricted)
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  24. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maria Demertzis & Massimiliano Marcellino & Nicola Viegi, 2008. "A Measure for Credibility: Tracking US Monetary Developments," Economics Working Papers ECO2008/38, European University Institute. [Downloadable!]
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  2. WenShwo Fang & Stephen M. Miller & ChunShen Lee, 2009. "Inflation Targeting Evaluation: Short-run Costs and Long-run Irrelevance," Working papers 2009-14, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  3. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob de Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," DNB Working Papers 170, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  4. Madhavi Bokil & Axel Schimmelpfennig, 2005. "Three Attempts at Inflation Forecasting in Pakistan," IMF Working Papers 05/105, International Monetary Fund. [Downloadable!]
  5. Maria Demertzis & Marco Hoeberichts, 2006. "The Costs of Increasing Transparency," DNB Working Papers 080, Netherlands Central Bank, Research Department. [Downloadable!]
  6. Mihov, Ilian & Rose, Andrew K, 2007. "Is Old Money Better than New? Duration and Monetary Regimes," CEPR Discussion Papers 6529, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Katja Funke & Christiane Nickel, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank. [Downloadable!]
  8. Jorge Lorca, 2005. "Quantifying the Causal Effect of Inflation Targets," Working Papers Central Bank of Chile 337, Central Bank of Chile. [Downloadable!]
  9. Maria Demertzis & Nicola Viegi, 2008. "Inflation Targets as Focal Points," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 55-87, March. [Downloadable!]
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  10. Christopher Bowdler & Adeel Malik, 2005. "Openness and inflation volatility: Cross-country evidence," Economics Papers 2005-W14, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  11. Carl Walsh, 2007. "Inflation Targeting and the Role of Real Objectives," Research and Policy Notes 2007/02, Czech National Bank, Research Department. [Downloadable!]
  12. César Calderón & Klaus Schmidt-Hebbel, 2008. "What drives the Choice of Money-based Targets in the World?," Working Papers Central Bank of Chile 479, Central Bank of Chile. [Downloadable!]
  13. Helge Berger & Volker Nitsch, 2008. "Too Many Cooks? Committees in Monetary Policy," KOF Working papers 08-195, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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  14. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Paolo Vitale, 2006. "A market microstructure analysis of foreign exchange intervention," Working Paper Series 629, European Central Bank. [Downloadable!]
    Other versions:
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