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Quantitative goals for monetary policy: a quantile regression approach

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  • Aaron Jackson
  • William Miles

Abstract

A recent paper by Fatas et al. (2006) indicates that formal monetary policy targets-exchange rate, money supply or inflation targets-palpably decrease inflation in a sample of 40 countries. The authors employ various least squares estimations, which pick up the conditional average effect. However, there is wide inflation variability in the authors' sample. Thus, formal targets could have very different effects in high- and low- inflation countries. Accordingly, we utilize the technique of quantile regression, a method frequently used in labour economics. We find, in a sample of low- and moderate-inflation countries, that formal targets exert no significant impact on low-inflation nations. This result is important for debates over formal targets, such as whether the United States should adopt an inflation target. There are costs and benefits in having formal targets, and finding that targets do not decrease inflation, when it is already moderate, is an important piece of information to consider.

Suggested Citation

  • Aaron Jackson & William Miles, 2009. "Quantitative goals for monetary policy: a quantile regression approach," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2065-2071.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:16:p:2065-2071
    DOI: 10.1080/00036840701736123
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    References listed on IDEAS

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    1. Antonio Fat¡S & Ilian Mihov & Andrew K. Rose, 2007. "Quantitative Goals for Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1163-1176, August.
    2. Teruyoshi Kobayashi, 2005. "Optimal monetary policy and the role of hybrid inflation-price-level targets," Applied Economics, Taylor & Francis Journals, vol. 37(18), pages 2119-2125.
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    4. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
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    6. Hakan Berument & Richard Froyen, 1998. "Potential information and target variables for UK monetary policy," Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 449-463.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    8. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    9. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
    10. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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    Cited by:

    1. Lin, Hsin-Yi, 2016. "Do quantitative monetary targets matter?," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 415-428.

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