Targets and techniques of monetary policy in Western Europe

Abstract

In recent years a growing number of western European countries have adopted the practice of setting growth targets for money supply and/or other monetary aggregates. For these countries, of course, the new approach has implied a shift away from reliance upon interest rate objectives as an intermediate target of policy. This article looks at the story lying behind the spreading use of this technique. In particular, the author examines whether central banks have suddenly become converted to the precepts of “monetarism”, or rather whether this shift is simply a pragmatic response to changing economic environment. The reasons for the adoption of published monetary targets is first analysed. Then, international comparisons of target fixing and their results are made and the problems of targeting are considered.

JEL: E52, E43