Discussion paper

DP2522 Eurosystem Monetary Targeting: Lessons from US Data

Using a small empirical model of inflation, output, and money estimated on US data, we compare the relative performance of monetary targeting and inflation targeting. The results show that monetary targeting would be quite inefficient, with both higher inflation and output variability. This is true even with a nonstochastic money demand formulation. Our results are also robust to using a P* model of inflation. Therefore, in these popular frameworks, there is no support for the prominent role given to money growth in the Eurosystem's monetary policy strategy.


Svensson, L and G Rudebusch (2000), ‘DP2522 Eurosystem Monetary Targeting: Lessons from US Data‘, CEPR Discussion Paper No. 2522. CEPR Press, Paris & London. https://cepr.org/publications/dp2522