Seminar Papers, Institute for International Economic Studies, Stockholm University
Does the P* Model provide Any Rationale for Monetary Targeting?
Abstract: The so called P* model is frequently used or referred to
in discussions of monetary targeting. This gives the impression that the P*
model might provide some rationale for monetary targeting or for the
monetary reference value used by the Eurosystem. The P* model implies that
inflation is detremined by the level of and changes in the "real money gap"
(the deviation of current real balances from their long-run equilibrium
level), and hence that the money gap is an important indicator for future
inflation. Nevertheless, the P* model does not seem to provide any
rationale for either a Bundesbank-style money-growth target or a
Eurosystem-style money-growth indicator.
Keywords: Real Balances; Reference value; Inflaion targeting; (follow links to similar papers)
JEL-Codes: E42; E52; E58; (follow links to similar papers)
21 pages, June 3, 1999
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