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Targeting Inflation with a Prominent Role for Money

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  • Söderström, Ulf

    ()
    (Research Department, Central Bank of Sweden)

Abstract

This paper demonstrates how a target for money growth can be beneficial for an inflation targeting central bank acting under discretion. Because the growth rate of money is closely related to the change in the interest rate and he growth of real output, delegating a money growth target to the central bank makes discretionary policy more inertial, leading to better social outcomes. This delegation scheme is also compared with other schemes suggested in the literature. Although other delegation schemes are sometimes more efficient, the results indicate that giving a prominent role to a money growth indicator can be a sensible strategy for monetary policy.

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File URL: http://www.riksbank.se/upload/Dokument_riksbank/Kat_foa/wp_123.pdf
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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 123.

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Length: 27 pages
Date of creation: 01 Jun 2001
Date of revision:
Publication status: Published in Economica, 2005, pages 577-596.
Handle: RePEc:hhs:rbnkwp:0123

Contact details of provider:
Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Keywords: Discretion; commitment; monetary policy inertia; inflation targeting; monetary targeting;

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References

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Citations

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Cited by:
  1. Ansgar Belke & Thorsten Polleit, 2004. "A Model for Forecasting Swedish Inflation," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim, Department of Economics, University of Hohenheim, Germany 246/2004, Department of Economics, University of Hohenheim, Germany.
  2. Richard Mash, 2002. "New Keynesian Microfundations Revisited: A Generalised Calvo-Taylor Model and the Desirability of Inflation vs. Price Level Targeting," Economics Series Working Papers, University of Oxford, Department of Economics 109, University of Oxford, Department of Economics.
  3. Carl Walsh, 2001. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," CESifo Working Paper Series 609, CESifo Group Munich.
  4. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(5), pages 1029-1059, July.
  5. Jean-Paul Lam, 2003. "Alternative Targeting Regimes, Transmission lags and the Exchange rate Channel," Macroeconomics, EconWPA 0309005, EconWPA, revised 04 Sep 2003.
  6. Adolfson, Malin, 2001. "Optimal Monetary Policy Delegation under Incomplete Exchange Rate Pass-Through," Working Paper Series in Economics and Finance, Stockholm School of Economics 477, Stockholm School of Economics.

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