Targeting Nominal Income Growth or Inflation?
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)Download Info
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Bibliographic Info
Article provided by American Economic Association in its journal American Economic Review.
Volume (Year): 92 (2002)
Issue (Month): 4 (September)
Pages: 928-956
Note: DOI: 10.1257/00028280260344533
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Keywords:Other versions of this item:
- Henrik Jensen, . "Targeting Nominal Income Growth or Inflation?," EPRU Working Paper Series 99-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Jensen, Henrik, 1999. "Targeting Nominal Income Growth or Inflation?," CEPR Discussion Papers 2341, C.E.P.R. Discussion Papers.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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