How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson

✍ Scribed by Franz Seitz; Karl-Heinz Tödter

• Book ID: 108561030
• Publisher: John Wiley and Sons
• Year: 2001
• Tongue: English
• Weight: 72 KB
• Volume: 2
• Category: Article
• ISSN: 1465-6485
• DOI: 10.1111/1468-0475.00040

✦ Synopsis

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.