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

Franz Seitz and Karl‐Heinz Tödter

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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