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Money as an indicator variable for monetary policy when money demand is forward looking

  • Kajanoja, Lauri

    (Bank of Finland Research)

Registered author(s):

    This paper studies the gain from using money as an indicator when monetary policy in made under data uncertainty. We use a forward and backward looking model, calibrated for the euro area. The policymaker cannot completely observe the state of the economy. Money reveals some of the private sector’s information to the policymaker, especially if there is a forward looking element in money demand. We show that observing money can considerably reduce the loss that is due to incomplete information. However, taking also into account other financial market data could decrease the marginal importance of money as an indicator.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0309.pdf
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    Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2003.

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    Length: 38 pages
    Date of creation: 09 Apr 2003
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2003_009
    Contact details of provider: Postal:
    Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland

    Web page: http://www.suomenpankki.fi/en/

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    19. Cuthbertson, Keith & Taylor, Mark P., 1990. "Money demand, expectations, and the forward-looking model," Journal of Policy Modeling, Elsevier, vol. 12(2), pages 289-315.
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