
Contents
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1 Introduction 1 Introduction
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2 Money Targeting in Practice 2 Money Targeting in Practice
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3 A Monetary Reaction Function with Money 3 A Monetary Reaction Function with Money
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4 The Model 4 The Model
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4.1 The Non-Policy Block of the Economy 4.1 The Non-Policy Block of the Economy
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4.2 Monetary Policy 4.2 Monetary Policy
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4.3 Information Sets 4.3 Information Sets
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4.4 Model Solution and Signal Extraction 4.4 Model Solution and Signal Extraction
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4.4.1 Solution under Complete Information 4.4.1 Solution under Complete Information
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4.4.2 Solution under Incomplete Information 4.4.2 Solution under Incomplete Information
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4.5 Private Sector Expectations 4.5 Private Sector Expectations
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4.6 Central Bank Estimates of Endogenous Variables 4.6 Central Bank Estimates of Endogenous Variables
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4.7 The Signal Extraction Problem 4.7 The Signal Extraction Problem
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5 A Role for Money Targets in the Monetary Policy Framework 5 A Role for Money Targets in the Monetary Policy Framework
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5.1 Introducing a Noisy Measure of the Relevant Interest Rate 5.1 Introducing a Noisy Measure of the Relevant Interest Rate
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5.2 Introducing a Noisy Measure of Economic Activity 5.2 Introducing a Noisy Measure of Economic Activity
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6 Conclusion 6 Conclusion
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References References
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8 On the Role of Money Targets in the Monetary Policy Framework in SSA: Insights from a New Keynesian Model with Incomplete Information
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Published:March 2018
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Abstract
Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This chapter extends the New Keynesian model to provide a role for ‘M’ in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issue in these countries. Ex ante announcements and forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex post, the policymaker must choose his relative adherence to interest rate and money growth targets. The chapter shows that some adherence to previously set money targets can emerge endogenously from the signal extraction problem faced by the central bank. The chapter also provides an analytical representation of the factors influencing the degree of optimal target adherence.
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