Quantitative Goals for Monetary Policy

63 Pages Posted: 22 May 2006

See all articles by Antonio Fatás

Antonio Fatás

INSEAD; Centre for Economic Policy Research (CEPR); ABFER

Ilian Mihov

INSEAD; Centre for Economic Policy Research (CEPR)

Andrew Kenan Rose

University of California - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2006

Abstract

We study empirically the macroeconomic effects of an explicit de jure quantitative goal for monetary policy. Quantitative goals take three forms: exchange rates, money growth rates, and inflation targets. We analyze the effects on inflation of both having a quantitative target, and of hitting a declared target; we also consider effects on output volatility. Our empirical work uses an annual data set covering 42 countries between 1960 and 2000, and takes account of other determinants of inflation (such as fiscal policy, the business cycle, and openness to international trade), and the endogeneity of the monetary policy regime. We find that both having and hitting quantitative targets for monetary policy is systematically and robustly associated with lower inflation. The exact form of the monetary target matters somewhat (especially for the sustainability of the monetary regime), but is less important than having some quantitative target. Successfully achieving a quantitative monetary goal is also associated with less volatile output.

Keywords: Transparency, exchange, rate, money, growth, inflation, target, business cycle

JEL Classification: E52

Suggested Citation

Fatas, Antonio and Mihov, Ilian and Rose, Andrew Kenan, Quantitative Goals for Monetary Policy (April 2006). ECB Working Paper No. 615. Available at SSRN: https://ssrn.com/abstract=891017

Antonio Fatas

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
+6567995384 (Phone)

HOME PAGE: http://faculty.insead.edu/fatas

Centre for Economic Policy Research (CEPR)

London
United Kingdom

ABFER ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Ilian Mihov (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, Singapore 138680
Singapore
+65 6799 5434 (Phone)

HOME PAGE: http://www.insead.edu/facultyresearch/faculty/personal/imihov/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Andrew Kenan Rose

University of California - Haas School of Business ( email )

Berkeley, CA 94720
United States
510-642-6609 (Phone)
510-642-4700 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/arose

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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