How the P* Model Rationalizes Monetary Targeting: A Comment on Svensson
Keyword(s):
The Real
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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.