Evolution and Prospects
Chapter 5: Channels of Monetary Policy and Implications for the Euro
5.1 INTRODUCTION1 This chapter contributes to one strand of the empirical work drawn upon in Chapter 4, regarding the demand for money. The demand for money is an important variable to monetary policy as operated at the moment by the European Central Bank (ECB). The empirical properties of both the individual member states and the aggregate European Monetary Union (EMU) demand for money, would have to be closely monitored by the ECB. The literature on the demand for money in the EMU countries recognises that the conduct of monetary policy in a monetary targeting regime relies heavily and crucially on a stable demand for money along with theory-consistent interest elasticities. Otherwise, the transmission mechanism of monetary policy becomes uncertain. Similarly, when a combination of both monetary and direct inflation targeting is pursued, here again the conduct of monetary policy relies, to a very large extent, on the properties of the demand for money relationship in the member states of the EMU. The stability of the demand for money is regarded as the prerequisite to both regimes of targeting. However, when an inflation target is preferred to a monetary target, to be influenced by the rate of interest, the presupposition of a stable demand for money is not so crucial. Although money aggregates could potentially continue to provide information on inflation forecasts, this may not be deemed necessary by the Central Bank. The Bank of England, for example, does not consider such information as useful simply because there is the belief...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.