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Alternative Nominal Anchors

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  • Peter N. Ireland

Abstract

In 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.

Suggested Citation

  • Peter N. Ireland, 1998. "Alternative Nominal Anchors," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 365-384, May.
    • Handle: RePEc:cje:issued:v:31:y:1998:i:2:p:365-384
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    Cited by:

    1. 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, Elsevier.
    2. 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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