Robustness in monetary policymaking: a case for the Friedman rule

Arbeitspapier

Inflation targeting involves using all available information in stabilizing inflation around some target rate (Svensson, 2003). Inflation is typically at the very end of the transmission mechanism and hence its determination is subject to much model uncertainty which the central bank will want to guard against using robust policies. Such robustness comes however with the cost of increased social loss under the most likely description of the economy. We show that with a sufficiently high degree of model uncertainty, adherence to the Friedman rule of increasing the money stock by k percent will be superior as the price paid for robustness is smaller.

Object Details

• ISBN: 952-462-263-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 4/2006

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Monetary Policy ; Central Banks and Their Policies ; Policy Objectives; Policy Designs and Consistency; Policy Coordination
• Subject: policy robustness ; money growth targeting ; inflation targeting ; Friedman rule

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kilponen, Juha ; Leitemo, Kai
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/212029
• Last update: 10.03.2025, 11:42 AM CET