Targeting Nominal Income Growth or Inflation?
- 1 August 2002
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 92 (4) , 928-956
- https://doi.org/10.1257/00028280260344533
Abstract
Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial policy making, which improves the inflation-output-gap trade-off. Somewhat paradoxically, inflation targeting may be relatively less favorable the more society dislikes inflation, and the more persistent are the effects of inflation-generating shocks. (JEL E42, E52, F58)Keywords
This publication has 21 references indexed in Scilit:
- The Science of Monetary Policy: A New Keynesian PerspectiveJournal of Economic Literature, 1999
- State-Dependent Pricing and the General Equilibrium Dynamics of Money and OutputThe Quarterly Journal of Economics, 1999
- Optimal Inflation Targets, “Conservative” Central Banks, and Linear Inflation Contracts: CommentAmerican Economic Review, 1999
- Discretion versus policy rules in practiceCarnegie-Rochester Conference Series on Public Policy, 1993
- Interest rates and the conduct of monetary policyCarnegie-Rochester Conference Series on Public Policy, 1991
- Macroeconomic Policy in a Two-Party System as a Repeated GameThe Quarterly Journal of Economics, 1987
- The Optimal Degree of Commitment to an Intermediate Monetary TargetThe Quarterly Journal of Economics, 1985
- Targeting Nominal Income: An AppraisalThe Economic Journal, 1983
- A Positive Theory of Monetary Policy in a Natural Rate ModelJournal of Political Economy, 1983
- Rules Rather than Discretion: The Inconsistency of Optimal PlansJournal of Political Economy, 1977