In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank using the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information...

Recent financial crises and central banks’ interventions to ensure liquidity on the monetary markets around the world have shown that using interest rate as instrument of monetary policy can be insufficient. Using an aggregate dynamic macro-economic model, we study how to combine inflation...

Using a simple macro-economic model, this study shows how a two-pillar monetary strategy as practiced by the European central bank (ECB) can be conceived to guarantee dynamic macro-economic stability and the credibility of monetary policy. This strategy can be interpreted as a combination of...

The mainstream inflation-targeting literature makes the strong assumption that the central bank can exactly target the interest rate which affects investment and consumption decisions and hence the money supply plays no role in the monetary policy strategy. This assumption is equivalent to...