In practice, therefore, the Bundesbank does not actually pursue a pure monetary target.
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It is considering two options: a monetary target or an inflation target.
ECONOMIST: Remember monetarism? It may be coming back into fashion
Establishing such credibility will prove hard if it sets a monetary target and then is promptly forced by unforeseen events to overshoot it.
ECONOMIST: Remember monetarism? It may be coming back into fashion
That could include increasing government-bond purchases, or setting itself a monetary target not just based on a positive inflation rate, but on robust growth of nominal GDP.
There's a reason, it turns out, why the monetary policy target most loved, in theory, by academic economists for the best part of 40 years has never made it to the point of actually being used.
As well as proposing a lot more old-style deficit spending on public works and the like, the soon-to-be Japanese prime minister campaigned on a pledge to raise the Bank of Japan's inflation target to from 1% to 2%, insisting there should be unlimited monetary stimulus until that target is reached.
The three key elements of this policy remained the adoption of a floating exchange rate system, the anchoring of monetary policy to the inflation target and the acceleration of banking sector reforms, he said.
And Mr Fraga will have to implement a credible monetary policy based on an inflation target.
It is just a matter of adjusting the monetary base according to a gold target, rather than a Keynesian interest rate target.
As a result, they say, it is unlikely that G20 will target Japan's recent monetary easing.
Right now, the Fed is projecting below-target inflation and above-target unemployment, suggesting that monetary policy is too tight.
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He added that inflation was running below the Fed's long-term target of 2% and said current monetary policy was helping to counter "incipient deflationary pressures".
Patterns of bond trading in the City clearly show that investors believe that the Monetary Policy Committee of the Bank will achieve its target of a 2.5% inflation rate.
The U.S. Federal Reserve has set an employment target for an end to its ultra-loose monetary policy.
Given that the Japanese monetary policy is already accommodative, a new CPI or inflation target may not have a commanding impact.
Our baseline outlook is for a moderately expansionary fiscal policy (media reports are that the fiscal deficit target is likely to be CNY1.2trn, or 2.2 percent GDP in 2013, up from CNY800bn and 1.5 percent GDP in 2012), a neutral monetary stance (media reported 13.5 percent M2 growth target for 2013, compared with 14 percent in 2012) and gradual reforms.
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ECB's target range mean that it is not ready to ease monetary policy just yet.
The Bundesbank, in line with its own practice over the past 25 years, favoured a money-supply target, in which interest rates are changed to keep monetary growth within a specified range.
ChartObject Federal Funds Target RateAccording to Investopedia, quantitative easing is a government monetary policy occasionally used to increase the money supply by buying securities, such as U.S. Treasury Bonds, in the open market.
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After emphasizing that the Fed remains committed to both sides of their mandate, Bernanke said that inflation expectations remain anchored at or near the 2% target the Fed considers adequate, and sought to differentiate monetary stimulus from fiscal stimulus.
The central bank, under its new governor Haruhiko Kuroda, has vowed to double the monetary base through purchases of government bonds to meet a 2 percent inflation target within the next two years.
The Bank clearly believes the combined impact of the recent tightening across monetary, macro-prudential and fiscal policies will push inflation to its target, around 4.6% from the 6.3% 12 month rolling inflation currently.
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But you have to wonder whether it will also turn out to be another step towards a post-crisis world of monetary policy, where the nominal rate of inflation is no longer the target of choice.
Dangerous imbalances can build slowly in a financial system, in ways that may not be obvious to a group of economists whose main focus each month is whether the monetary-policy setting is too hot or cold to hit an inflation target.
The BOE said the annual rate of inflation will remain above its target for longer than expected, but it won't tighten monetary policy and risk derailing a recovery.
Now, Japan is going whole hog into easy monetary policy with Prime Minister Shinzo Abe strong arming the Bank of Japan to target a 2% inflation rate.
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To meet that 2% inflation target, Prime Minister Abe has put forth an aggressive ultra-easy monetary policy which will pump more money into the economy and also weaken the yen.
Targeting the country's economic output rather than inflation would be a major change to monetary policy, although it is not within the power of the Bank to change its target.
Moreover, the MPC still has room for manoeuvre to counter the contractionary effects of additional budgetary curbs, because its central forecast shows consumer-price inflation below the 2% target in two years' time, the horizon it focuses on when setting monetary policy.
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