DP2521 Poole Revisited
|Author(s):||Fabrice Collard, Harris Dellas, Guy Ertz|
|Publication Date:||August 2000|
|Keyword(s):||Central Bank Operating Procedures, Interest Targeting, Macroeconomic Stability, Monetary Policy And Welfare, Money Targeting|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2521|
We study the properties of alternative central bank targeting procedures in a general equilibrium monetary model of the US economy with labour contracts, endogenous velocity and three shocks: money demand, supply and fiscal. Money demand -velocity- shocks emerge as the main sources of macroeconomic volatility. Consequently, nominal interest rate targeting results in greater stability than money targeting. Interestingly this holds independently of the type of the shock (unlike Poole). Interest rate targeting also generates a higher level of welfare.