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
JEL(s): E32, E52
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.