Seminar Papers, Institute for International Economic Studies, Stockholm University
Jürgen von Hagen
Money Growth Targeting
Abstract: 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.
Keywords: Monetary growth targeting; Deutsche Bundesbank; European Central Bank; Closed-loop monetary strategies; (follow links to similar papers)
JEL-Codes: E50; E52; (follow links to similar papers)
42 pages, July 1, 1998
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