Alternative Nominal Anchors
AbstractIn this paper, the choice of an intermediate target for monetary policy is considered using a model that allows each alternative to be judged based on its welfare effects, measured using a representative household's utility function. The results show that nominal income targeting is preferable to money supply targeting since it provides an appropriate response to money demand shocks. Price-level targeting dominates nominal income targeting, however, since it also provides an appropriate response to technology shocks. In fact, these results imply that price-level targeting represents the optimal monetary policy.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 31 (1998)
Issue (Month): 2 (May)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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- McCallum, Bennett T., 1999.
"Issues in the design of monetary policy rules,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530
- Guender, Alfred V. & Tam, Julie, 2004. "On the performance of nominal income targeting as a strategy for monetary policy in a small open economy," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 143-163, March.
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