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Does the P* Model Provide Any Rationale for Monetary Targeting?

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  • Svensson Lars E. O.

    (Institute for International Economic Studies, Stockholm University; CEPR and NBER,Stockholm, Sweden)

Abstract

The so-called P* model is frequently used or referred to in discussions of monetary targeting. This gives the impression that the P* model might provide some rationale for monetary targeting or for the monetary reference value used by the Eurosystem. The P* model implies that inflation is determined by the level of and changes in the `real money gap' (the deviation of current real balances from their long-run equilibrium level), and hence that the real money gap is an important indicator for future inflation. Nevertheless, the P* model does not seem to provide any rationale for either a Bundesbank-style money-growth target or a Eurosystemstyle money-growth indicator.

Suggested Citation

  • Svensson Lars E. O., 2000. "Does the P* Model Provide Any Rationale for Monetary Targeting?," German Economic Review, De Gruyter, vol. 1(1), pages 69-81, February.
  • Handle: RePEc:bpj:germec:v:1:y:2000:i:1:p:69-81
    DOI: 10.1111/1468-0475.00005
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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