Eurosystem monetary targeting: Lessons from U.S. data |
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Authors: | Glenn D. Rudebusch Lars E.O. Svensson |
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Affiliation: | a Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco, CA 94120-7702, USA b Institute for International Economic Studies, Stockholm University, SE-106 91 Stockholm, Sweden c Center for Economic Policy Research, London, UK d NBER, Cambridge, MA, USA |
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Abstract: | 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 monetary targeting to be quite inefficient, yielding both higher inflation and output variability. This is true even with a nonstochastic money demand formulation. Our results are also robust to using a P∗ model of inflation. Therefore, in these popular frameworks, there is no support for the prominent role given to money growth in the Eurosystem's monetary policy strategy. |
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Keywords: | E42 E52 E58 |
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