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Inflation Expectations and the Stability Properties of Nominal GDP Targeting

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  • Dennis, Richard

Abstract

Ball (1999) uses a small closed economy model to show that nominal GDP targeting can lead to instability. This paper extends Ball's model to uncover the role inflation expectations play in generating this instability. Allowing inflation expectations to be formed by the more general mixed expectations process, which encompasses Ball's model, we show that nominal GDP targeting is unlikely to lead to instability. We further show that in Ball's model where exact targeting causes instability that moving to inexact targeting restores stability.

Suggested Citation

  • Dennis, Richard, 2001. "Inflation Expectations and the Stability Properties of Nominal GDP Targeting," Economic Journal, Royal Economic Society, vol. 111(468), pages 103-113, January.
    • Handle: RePEc:ecj:econjl:v:111:y:2001:i:468:p:103-13
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    Cited by:

    1. Chen, Huiying, 2020. "Nominal GDP targeting, real economic activity and inflation stabilization in a new Keynesian framework," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 53-63.
    2. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.
    3. Roisland, Oistein, 2001. "Institutional Arrangements for Monetary Policy When Output Is Persistent," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 994-1014, November.
    4. Malik, Hamza, 2005. "Price Level vs. Nominal Income Targeting: Aggregate Demand Shocks and the Cost Channel of Monetary Policy Transmission," MPRA Paper 456, University Library of Munich, Germany, revised Aug 2006.
    5. Kai Leitemo & Øistein Røisland & Ragnar Torvik, 2005. "Monetary policy rules and the exchange rate channel," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1165-1170.
    6. Salem Abo‐Zaid & Huiying Chen & Ahmed Kamara, 2021. "A fiscal perspective on nominal GDP targeting," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1641-1660, October.
    7. Evan F. Koenig, 2012. "All in the family: the close connection between nominal-GDP targeting and the Taylor Rule," Staff Papers, Federal Reserve Bank of Dallas, issue Mar.
    8. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.

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