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Eurosystem Monetary Targeting: Lessons from U.S. Data

  • Rudebusch, Glenn D.

    ()

    (Federal Reserve Bank of San Francisco)

  • Svensson, Lars E. O.

    ()

    (Institute for International Economic Studies, Stockholm University)

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 Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 92.

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Length: 29 pages
Date of creation: 01 Sep 1999
Date of revision:
Publication status: Published in European Economic Review, 2002, pages 417-442.
Handle: RePEc:hhs:rbnkwp:0092
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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  1. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
  2. Bennett T. McCallum, 1997. "The Alleged Instability of Nominal Income Targeting," NBER Working Papers 6291, National Bureau of Economic Research, Inc.
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  4. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
  5. Oliner, Stephen D. & Rudebusch, Glenn D. & Sichel, Daniel, 1996. "The Lucas critique revisited assessing the stability of empirical Euler equations for investment," Journal of Econometrics, Elsevier, vol. 70(1), pages 291-316, January.
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  8. Svensson, Lars, 1999. "Does the P* Model provide Any Rationale for Monetary Targeting?," Seminar Papers 671, Stockholm University, Institute for International Economic Studies.
  9. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
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