Monetary Policy Rules in Practice: Some International Evidence

Richard Clarida, Jordi Gali, Mark Gertler

NBER Working Paper No. 6254
Issued in November 1997
NBER Program(s):   EFG   IFM   ME

This paper reports estimates of monetary policy reaction functions for two sets of" countries: the G3 (Germany, Japan, and the U.S.) and the E3 (UK, France that since 1979 each of the G3 central banks has pursued an implicit form of inflation targeting which may account for the broad success of monetary policy in those countries over this time" period. The evidence also suggests that these central banks have been forward looking: they" respond to anticipated inflation as opposed to lagged inflation. As for the E3 emergence of the influenced by German" monetary policy. Further, using the Bundesbank's policy rule as a benchmark time of the EMS collapse, interest rates in each of the E3 countries were much higher than" domestic macroeconomic conditions warranted. Taken all together, the results lend support to" the view that some form of inflation targeting may under certain circumstances be superior to" fixing exchange rates, as a means to gain a nominal anchor for monetary policy."

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Published: European Economic Review, Vol. 42 (June 1998): 1033-1067.

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