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Eurosystem Monetary Targeting: Lessons from U.S. Data

  • Rudebusch, G.
  • Svensson, L.E.O.

Using a small empirical model of inflation, output, and money estimated on U.S. data, we compare the relative performance of monetary targeting and inflation targeting. The results show that monetary targeting would be quite inefficient, with both higher inflation and output variability. This is true even with a deterministic money demand formulation. In this framework, there is thus no support for the prominent role given to money growth in the Eurosystem's monetary policy strategy.

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Paper provided by Stockholm - International Economic Studies in its series Papers with number 672.

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Length: 28 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:stocin:672
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  1. Nelson, Edward, 2002. "Direct effects of base money on aggregate demand: theory and evidence," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 687-708, May.
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  34. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
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