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Indirect Convertibility, Inflation Targeting, and Monetary Policy Rules

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Abstract

In this paper the proposal for indirect convertibility (henceforth, IC)] put forward by Greenfield and Yeager (1983, 1989) is reexamined and reinterpreted to show that IC can provide a practical monetary policy rule for central banks currently engaged in inflation targeting. One reason for such a reexamination is the renewal of interest in monetary policy rules, as represented by the recent outpouring of econometric work on (implicit) policy rules [Taylor (1993), McCallum (1999), Poole (1999), and Williams (1999)]. Although the policy rules econometric work has not focused specifically on inflation targeting, further econometric work on monetary rules would benefit from a deeper understanding of the theoretical issues involved and the additional dimension that IC can bring to that analysis. In addition, inflation targeting in its own right continues to command much policy support and IC both promotes that and offers a monetary policy rule of its own.

Suggested Citation

  • J. Stephen Ferris & J.A. Galbraith, 2000. "Indirect Convertibility, Inflation Targeting, and Monetary Policy Rules," Carleton Economic Papers 00-10, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:00-10
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    1. William Poole, 1999. "Monetary policy rules?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-12.
    2. Leland B. Yeager & Robert L. Greenfield, 1989. "Can Monetary Disequilibrium Be Eliminated?," Cato Journal, Cato Journal, Cato Institute, vol. 9(2), pages 405-428, Fall.
    3. Pierre L. Siklos, 1999. "Inflation-target design: changing inflation performance and persistence in industrial countries," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 46-58.
    4. John C. Williams, 2003. "Simple rules for monetary policy," Economic Review, Federal Reserve Bank of San Francisco, pages 1-12.
    5. Leland B. Yeager, 1983. "Stable Money and Free-Market Currencies," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 305-333, Spring.
    6. Schnadt, Norbert & Whittaker, John, 1993. "Inflation-Proof Currency? The Feasibility of Variable Commodity Standards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 214-221, May.
    7. Dowd, Kevin, 1995. "The Mechanics of Indirect Convertibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 67-88, February.
    8. George A. Selgin & Lawrence H. White, 1994. "How Would the Invisible Hand Handle Money?," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1718-1749, December.
    9. Kevin Dowd, 1996. "Competition and Finance," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-24856-8, May.
    10. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    More about this item

    Keywords

    Indirect convertibility; inflation targeting; monetary policy rules; new monetary economics;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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