The Conditions for Monetary Targeting in Slovenia

If money multipliers are stable, there is a relationship between the controllable variable - base money (B) - and intermediate targets such as M1, M2, and M3. These intermediate targets have a long-term and stable relationship with the final target, the price level. If potential output, money demand, and velocity are predictable, a strategy of monetary targeting can be successful in the period before Slovenia joins the European Monetary Union. This article examines the stability of money multipliers and transmission mechanisms from money to prices for Slovenia. It concludes that these are sufficiently stable to make monetary targeting a feasible monetary policy for Slovenia. ments between tolar and foreign currency deposits that are included in it. The target annual growth rate of aggregate M3 in 1997 was 1422 percent, and 1826 percent in 1998. In 1998, aggregate M3 increased by 22.2 percent, only 2.2 percentage points above the lower limit. The target for 1999 was an annual increase of M3 by 1624 percent and for 2000, 1218 percent (Bilten BS). We will test stability of the relationship between monetary and real aggregates in Slovenia. Such stability is the prerequisite for effective monetary policy, including a policy of inflation targeting. The Transmission of Monetary Impulses Tobe successful, monetary policy must include an accurate assessment