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Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries

In: NBER Macroeconomics Annual 1992, Volume 7

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  • Ben Bernanke
  • Frederic Mishkin

Abstract

Using a simple case study approach. this paper compares the conduct and performance of monetary policy in six Industrialized countries since the breakup of the Bretton Woods system. Our purpose is to develop fruitful hypotheses that might usefully be explored in subsequent, more formal research. From a positive perspective. a frequently observed pattern in the case studies is that central banks adopt money growth targets when inflation threatens to get out of control. Central banks appear to use money growth targets both as guideposts for assessing the stance of policy and as a means of signalling their intentions to the public; however. no central bank. adheres strictly to targets in the short run. More normatively. the case studies also suggest that money growth targets might be useful in providing a medium-term framework for monetary policy. if the targeting is done in a clear and straightforward manner and if targets can be adjusted for changes in the link between target and goal variables. It appears that rigid adherence to money growth targets in the short run is not necessary to gain some benefits of targeting, as long as there is some commitment by the central bank ultimately to reverse short-term deviations from target Finally. the choice of operating procedure seems to have little bearing on the success of policy

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This chapter was published in:

  • Olivier Jean Blanchard & Stanley Fischer, 1992. "NBER Macroeconomics Annual 1992, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number blan92-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10993.

    Handle: RePEc:nbr:nberch:10993

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    19. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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    21. Fischer, Stanley, 1990. "Rules versus discretion in monetary policy," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 21, pages 1155-1184 Elsevier.
    22. Walsh, Carl E, 1986. "In Defense of Base Drift," American Economic Review, American Economic Association, vol. 76(4), pages 692-700, September.
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