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Money Growth Targeting

  • von Hagen, Jürgen

    ()

    (Center for European Economic Studies)

The recent debate over monetary policy strategies concludes that monetary targeting and inflation targeting in practice lead to very similar patterns of central bank behavior. This raises the question why central banks insist on the strategies they use. In this paper, we develop an answer from political economy. After showing that closed-loop monetary strategies using similar information sets imply similar monetary policy performance, we argue that monetary strategies are helpful in solving internal and external coordination problems for the central bank. We illustrate the point by reviewing the Bundesbank's introduction of monetary targeting in the mid-1970s. Monetary targeting was important for the Bank as a signal that the previous monetary regime had been overcome, as a means to define the role of monetary policy vis-a-vis other players in the macro economic policy game, and to structure the internal monetary policy debate. The last section discusses the implications of this view for the new European Central Bank.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 643.

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Length: 42 pages
Date of creation: 01 Jul 1998
Date of revision:
Handle: RePEc:hhs:iiessp:0643
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