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| Author: | Laubach, T. |
| Title: | Signalling commitment with monetary and inflation targets |
| Journal: | European Economic Review
2003 : DEC, VOL. 47:6, p. 985-1009 |
| Index terms: | Monetary policy Inflation policy Central banks Control Models |
| Language: | eng |
| Abstract: | This article studies a 2-period game between the public and a central bank (herein cb.) about whose ability to commit to an announced target the public is uncertain. The cb. chooses btw. announcing a target for an intermediate variable (money growth) and its goal variable, inflation. Prior to setting its instrument, the cb. receives private, noisy information about the link btw. money growth and inflation. Monetary targeting facilitates communication of the cb.'s type, in that the probability of separation is always higher than under inflation targeting. This advantage of monetary targets from a dependable cb's perspective is outweighed for most parameter values by the advantage of inflation targeting in terms of inflation control. |
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