What is monetary aggregate targeting? Need explanation, thank you.
Monetary aggregate targeting is a guideline for monetary policy by which the central bank direct monetary aggregates as operating and intermediate target to effect the ultimate objective of price stability. The central bank is mainly focused on the money market and the inflation rate is not announced. Usually the central bank adjusts the interest rate which is a major determinant of inflation in the long run. The logic of the monetary aggregate targeting lies in the Quantity theory of money which is described by the following equation:-
MV = PT
Where,
M = nominal money supply
V = velocity of the circulation of money
P = price level
Y = aggregate output