Comments on ‘Money Supply, Interest Rate and Exchange Rate Targets: Conflicting Issues in an Open Economy’ by Rüdiger Pohl

Abstract

Rüdiger Pohl’s contribution is a competent addition to a line of literature, which is now quite lengthy, in which policy evaluation is conducted according to the ‘robustness’ criterion: that is to say, following Poole’s classic paper (Poole, 1970, extended for the open economy by Parkin (1978)), a policy is analysed for its characteristics in the face of unexpected shocks. Studies of this type predictably show that the results are model-dependent and preference function-specific. Moreover, to be useful as practical advice, some priors on the distribution of shocks need to be invoked. Over time, the ‘menu’ of policies to be analysed in this way has expanded, reflecting in part the disillusioning experience of monetary targets and a corresponding interest in alternatives, in rough chronological order those of targeting the exchange rate, nominal income and the price level.