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Targeting Inflation with a Role for Money

  • Ulf Söderström

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 the 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. The results indicate that stabilizing money growth around a target can be a sensible strategy for monetary policy, although other delegation schemes are often more efficient. Copyright (c) The London School of Economics and Political Science 2005.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 72 (2005)
Issue (Month): 288 (November)
Pages: 577-596

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Handle: RePEc:bla:econom:v:72:y:2005:i:288:p:577-596
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