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Controlling inflation in Euroland

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  • Karen Cabos
  • Nikolaus Siegfried

Abstract

The experience with the two pillar strategy of the European Central Bank (ECB) suggests that at some point in the future the ECB may have to commit to one of the more traditional policy strategies - a direct inflation target or an intermediate monetary target. This study offers some information on the scale of control and indicator problems associated with both strategies. We estimate the links between monetary policy actions and inflation in dynamic linear models with the Kalman filter. Using European M3 that the ECB has published, it is found that the overall control problems involved in targeting money are larger than for direct inflation targets.

Suggested Citation

  • Karen Cabos & Nikolaus Siegfried, 2004. "Controlling inflation in Euroland," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 549-558.
    • Handle: RePEc:taf:applec:v:36:y:2004:i:6:p:549-558
    DOI: 10.1080/0003684042000217599
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    References listed on IDEAS

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    Cited by:

    1. Martha Misas A. & Carlos Esteban Posada P & Diego Mauricio V�squez E, 2003. "¿Está determinado el nivel de precios por las expectativas de dinero y producto en Colombia?," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 21(43), pages 8-31.
    2. Jesus Garcia-Iglesias, 2007. "How the European Central Bank decided its early monetary policy?," Applied Economics, Taylor & Francis Journals, vol. 39(7), pages 927-936.
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    4. Melisso Boschi & Alessandro Girardi, 2007. "Euro area inflation: long-run determinants and short-run dynamics," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 9-24.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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