Rose thanks INSEAD, the Reserve Bank of Australia, and the Monetary Authority of Singapore for hospitality while this paper was written. For comments and suggestions, we thank: Roel Beetsma, Mick Devereux, Andrew Filardo, Jordi Gali, Maasimo Giuliodori, Albert Marcet, Patrick Minford, Assaf Razin, Andrew Scott, Ken West, two anonymous referees, and workshop participants at the CEPR, ECB, and HKMA. This is a shortened version of a paper with the same title; it, a current version of this paper, the data set, and output are available at Rose's website.
Quantitative Goals for Monetary Policy
Article first published online: 25 JUL 2007
Journal of Money, Credit and Banking
Volume 39, Issue 5, pages 1163–1176, August 2007
How to Cite
FATÁS, A., MIHOV, I. and ROSE, A. K. (2007), Quantitative Goals for Monetary Policy. Journal of Money, Credit and Banking, 39: 1163–1176. doi: 10.1111/j.1538-4616.2007.00061.x
- Issue published online: 25 JUL 2007
- Article first published online: 25 JUL 2007
- Received October 7, 2004; and accepted in revised form March 28, 2006.
- business cycle
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 hitting a declared target. 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.