Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 92: Eurosystem Monetary Targeting: Lessons from U.S. Data

Glenn D. Rudebusch () and Lars E. O. Svensson ()
Additional contact information
Glenn D. Rudebusch: Federal Reserve Bank of San Francisco
Lars E. O. Svensson: Institute for International Economic Studies, Stockholm University, Postal: SE-106 91 Stockholm, Sweden

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 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.

Keywords: Inflation targeting; Monetary targeting; ECB

JEL-codes: E42; E52; E58

29 pages, September 1, 1999

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