How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson

Franz Seitz and Tödter Karl-Heinz
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Tödter Karl-Heinz: University of Applied Sciences, Deutsche Bundesbank,VerbandsgemeindeHachenburg, Germany

German Economic Review, 2001, vol. 2, issue 3, 303-308

Abstract: In this comment, we answer the question posed in Svensson's (2000) paper `Does the P* Model Provide any Rationale for Monetary Targeting?' - in contrast to him - in the affirmative. We argue that a strategy of monetary targeting can be rationalized within the P* framework. Furthermore, we demonstrate that money growth targeting is a special form of inflation forecast targeting based on a `limited' information set. In contrast to `full information' inflation forecast targeting, monetary growth targeting is likely to be more robust under changing conditions of the real world.

Date: 2001
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DOI: 10.1111/1468-0475.00040

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