Modeling Anti-Inflationary Monetary Targeting: With an Application to Romania

57 Pages Posted: 6 May 2010

Date Written: April 21, 2010

Abstract

This paper attempts to characterise an anti-inflationary monetary targeting (MT) regime. In order to derive a formal representation of this regime, we formulate the central bank’s optimisation problem under the assumption that it is possible for the monetary targeted variable to have an impact on inflation. We apply a rather general framework to the Romanian experience with MT in the period 1999-2005. We find that during this period Romania's MT regime can be characterised by a concern for price stability and an additional role for smoothing of the central bank's instrument (base money growth). Our results suggest that exchange rate variability and output gap stability appear not to have entered the objective function significantly.

Keywords: Monetary Targeting, Optimal Monetary Policy, Romania

JEL Classification: E52, E58, C32, C61

Suggested Citation

Sanchez, Marcelo, Modeling Anti-Inflationary Monetary Targeting: With an Application to Romania (April 21, 2010). ECB Working Paper No. 1186, Available at SSRN: https://ssrn.com/abstract=1593663

Marcelo Sanchez (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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