Some Thoughts on Monetary Targeting vs. Inflation Targeting

Authors: Cabos, Karen¹; Funke, Michael¹; Siegfried, Nikolaus A.¹

Source: German Economic Review, Volume 2, Number 3, August 2001 , pp. 219-238(20)

Publisher: Blackwell Publishing

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Abstract:

We offer some empirical evidence on the likely scale of control and indicator problems surrounding alternative monetary targets and a direct inflation target. The links between monetary policy actions and inflation are estimated in dynamic linear models using the Kalman filter. We compare alternative intermediate-target and final-target monetary strategies using German data from the end of the Bretton Woods system until 1997. The estimation results show that broad money dominates narrow money as an intermediate target, while control problems involved in targeting broad money are larger than for direct inflation targets.

Document Type: Original article

DOI: 10.1111/1468-0475.00035

Affiliations: 1: University of Hamburg, Germany

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