Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88198
Authors: 
Gerberding, Christina
Seitz, Franz
Worms, Andreas
Year of Publication: 
2009
Series/Report no.: 
ROME Discussion Paper Series 09-01
Abstract: 
The paper derives the monetary policy reaction function implied by money growth targeting. It consists of an interest rate response to deviations of the inflation rate from target, to the change in the output gap, to money demand shocks and to the lagged interest rate. We show that this type of inertial interest rate rule characterises the Bundesbank's monetary policy from 1979 to 1998 quite well. This result is robust to the use of real-time or ex post data. The main lesson is that, in addition to anchoring long term inflation expectations, monetary targeting introduces inertia and history-dependence into the monetary policy rule. This is advantageous when private agents have forward-looking expectations and when the level of the output gap is subject to persistent measurement errors.
Subjects: 
Monetary policy
Taylor rule
monetary growth targets
history dependence
JEL: 
E43
E52
E58
Document Type: 
Working Paper

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