The Role of Money in Monetary Policymaking

Bank of International Settlements Working Paper No. 19-2003

34 Pages Posted: 18 Mar 2004

See all articles by Klaus Masuch

Klaus Masuch

European Central Bank (ECB)

Sergio Nicoletti Altimari

European Central Bank (ECB)

Massimo Rostagno

European Central Bank (ECB)

Abstract

In this paper, the conceptual and empirical bases for the role of monetary aggregates in monetary policy making are reviewed. It is argued that money can act as a useful information variable in a world in which a number of indicators are imperfectly observed. In this context, the paper discusses the role of a reference value or benchmark for money growth in episodes of heightened financial uncertainty. A reference value for money growth can also act as an anchor for expectations and policy decisions to prevent divergent dynamics, such as the spiralling of the economy into a liquidity trap, which can occur under simple interest rate rules for policy conduct. The paper concludes that using information included in monetary aggregates in monetary policy decisions can provide an important safeguard against major policy mistakes in the presence of model uncertainty.

Keywords: Monetary policy, monetary aggregates, reference value

JEL Classification: E5, E58, E52, E41

Suggested Citation

Masuch, Klaus and Nicoletti Altimari, Sergio and Rostagno, Massimo, The Role of Money in Monetary Policymaking. Bank of International Settlements Working Paper No. 19-2003. Available at SSRN: https://ssrn.com/abstract=517702 or http://dx.doi.org/10.2139/ssrn.517702

Klaus Masuch

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sergio Nicoletti Altimari

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Massimo Rostagno (Contact Author)

European Central Bank (ECB) ( email )

Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany
+49 69 1344 7663 (Phone)
+49 69 1344 7604 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
155
Abstract Views
1,796
rank
191,936
PlumX Metrics