This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Anchor 11 Monetary Targeting
► ► In this strategy the Central Bank (CB) announces that it will achieve a certain value (target) of the annual growth rate of a monetary aggregate such as 4% growth rate of M1 or 6% growth rate of M3 etc. The CB is accountable for hitting the target.
This was initially suggested by Milton Friedman that the monetary aggregate should grow at a constant rate. In the 1970’s monetary targeting was adopted by Germany, Switzerland, Canada, the UK, Japan and the US. But it was not pursued very seriously in some of these countries.
In the 1980’s it was found that monetary aggregates were not a reliable guide to monetary policy and monetary targeting is abandoned by many of these countries.
12 ► Advantages of Monetary Targeting: Immediate knowledge about the achievement of the target. Monetary aggregate figures are reported within weeks. Immediate signaling regarding the stance of monetary policy to the economic agents. (stance: duruş, durum) Immediate accountability for mon...
View Full Document