Eurosystem Monetary Targeting: Lessons from U.S. Data


Glenn D. Rudebusch Federal Reserve Bank of San Francisco
Lars E.O Svensson Princeton University, CEPR and NBER

European Economic Review 46 (2002) 417-442. 
First draft: May 1999This version: May 2001


Using a small empirical model of inflation, output, and money estimated on U.S. data, we compare the relative performance of monetary targeting and inflation targeting. The results show monetary targeting to be quite inefficient, yielding 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.