How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson |
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Authors: | Franz Seitz & Karl-Heinz Tödter |
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Institution: | University of Applied Sciences, Amberg-Weiden,;Deutsche Bundebank |
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Abstract: | In this comment, we answer the question posed in Svensson’s (2000) paper ‘Does the P* Model Provide any Rationale for Monetary Targeting?’– in contrast to him ‐‐ in the affirmative. We argue that a strategy of monetary targeting can be rationalized within the P* framework. Furthermore, we demonstrate that money growth targeting is a special form of inflation forecast targeting based on a ‘limited’ information set. In contrast to ‘full information’ inflation forecast targeting, monetary growth targeting is likely to be more robust under changing conditions of the real world. |
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