Monetary Targeting in Germany

Abstract

Monetary targeting was considered an avant-garde experiment when the Deutsche Bundesbank introduced this concept in late 1974 after having been freed of the chains of the Bretton Woods system. Many central banks followed shortly afterward. Today, in contrast, monetary targeting is widely viewed as an outmoded procedure that has lost its pillar, a stable money demand function. For this reason, several countries, like Canada, New Zealand and the UK, have switched to the concept of direct inflation targeting, while other countries have reverted to pure discretion or continue pegging their currency to one of the key currencies or a currency basket. The Bundesbank, in contrast, holds on to its concept steadfastly and advertises monetary targeting as a suitable concept of policy formulation for the future European Central Bank. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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