The Strategy of Monetary Targeting: Can the German Experience Provide a Model for the ECB?
AbstractThis paper studies the Deutsche Bundesbank's concept of monetary targeting and discusses its merits relative to the Anglo-Saxon concept of direct inflation targeting. It is shown that monetary targeting is an effective device for anchoring medium-term inflation expectations. At the same time, this intermediate approach permits sufficient flexibility for leaning against the wind of currency appreciation and for responding to short-term events. Since there is no evidence that suggests that money demand will be unstable at European Level, it is argued that monetary targeting makes a suitable concept for the future ECB. Direct inflation targeting, in contrast, is likely to either prevent the ECB from gaining credibility or to require responding to price level shocks in an overly contractionary fashion.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 324.
Date of creation: Jul 1995
Date of revision:
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Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- Dai, Meixing, 2007.
"The design of a ‘two-pillar’ monetary policy strategy,"
14403, University Library of Munich, Germany, revised Mar 2009.
- Dai, Meixing, 2009. "The Design of a 'Two-Pillar' Monetary Policy Strategy," Economics Discussion Papers 2009-29, Kiel Institute for the World Economy.
- Ivar Bredesen & Lukas Menkhoff & Daniel Piazolo & Roger Svensson & Axel Schimmelpfennig & Karsten Junius, 1997. "Rezensionen," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(4), pages 754-768, December.
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