The success of European Economic and Monetary Union (EMU) will depend on the stability of the euro. The monetary policy framework is yet to be decided, but is likely to involve either money or inflation targeting. Stochastic simulations compare the outcomes for major macroeconomic and financial...

The two major prerequisites for adopting inflation targeting are a degree of independence of monetary policy and absence of commitment to a particular level for the exchange rate. A country satisfying these requirements could choose to conduct its monetary policy in a framework of inflation...