A smooth progression from Stage Two to Stage Three of EMU requires that the type of policy planned for Stage Three should be foreshadowed in Stage Two. Two possibilities for that policy are monetary targeting or an interest rate policy feeding back on a nominal variable. The paper re-examines the evidence of the 1980s to determine the nature and stability of reduced form relationships involving money and interest rates. Geweke linear feedback measures are presented for a subset of the G7 countries (France, Germany, Italy, the United Kingdom and the United States). Greater stability is found in relationships involving money than expected, while interest rate leads, though significant, are often at long lags. In addition, aggregate ERM money demand functions are shown to be stable. These results, though not conclusive, provide support for the case for monetary targeting.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
629.
Find related papers by JEL classification: C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Cited by: (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.)