Controlling inflation in Euroland

Karen Cabos and Nikolaus A Siegfried

Applied Economics, 2004, vol. 36, issue 6, 549-558

Abstract: The experience with the two pillar strategy of the European Central Bank (ECB) suggests that at some point in the future the ECB may have to commit to one of the more traditional policy strategies - a direct inflation target or an intermediate monetary target. This study offers some information on the scale of control and indicator problems associated with both strategies. We estimate the links between monetary policy actions and inflation in dynamic linear models with the Kalman filter. Using European M3 that the ECB has published, it is found that the overall control problems involved in targeting money are larger than for direct inflation targets.

Date: 2004
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DOI: 10.1080/0003684042000217599

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