Using a nominal GDP rule to guide discretionary monetary policy
AbstractGiven doubts about the reliability of the monetary aggregates as intermediate targets of monetary policy, the Federal Reserve attempts to meet its dual goals--gradual reduction of inflation and mitigation of cyclical downturns in output--through purely discretionary adjustments of an interest rate instrument in response to myriad incoming data. A procedure in which the Fed would consult a nominal GDP feedback rule, while retaining the flexibility to use discretion in its monetary policy decisions, might contribute to achieving its long-run inflation goal without significantly interfering with its ability to pursue its short-run cyclical goal. This paper describes such a policy regime, and presents some empirical evidence pertinent to an assessment of how it might work.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Economic Review.
Volume (Year): (1993)
Issue (Month): ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John P. Judd & Bharat Trehan, 1992. "Money, credit, and M2," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep4.
- Taylor, John B., 1985. "What would nominal GNP targetting do to the business cycle?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 61-84, January.
- Bruce Kasman, 1993. "A comparison of monetary policy operating procedures in six industrial countries," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
- Carl E. Walsh, 1985. "Revisions in the "flash" estimates of GNP growth: measurement error or forecast error?," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 5-13.
- Brian Motley, 1993. "Growth and inflation: a cross-country study," Working Papers in Applied Economic Theory 93-11, Federal Reserve Bank of San Francisco.
- Bennett T. McCallum, 1989. "Targets, Indicators, and Instruments of Monetary Policy," NBER Working Papers 3047, National Bureau of Economic Research, Inc.
- Joseph E. Gagnon & Ralph W. Tryon, 1993. "Price and output stability under alternative monetary policy rules," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
- Barro, Robert J, 1986. "Recent Developments in the Theory of Rules versus Discretion," Economic Journal, Royal Economic Society, vol. 96(380a), pages 23-37, Supplemen.
- Gregory D. Hess & David H. Small & Flint Brayton, 1993. "Nominal income targeting with the monetary base as instrument: an evaluation of McCallum's rule," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
- Thornton, Saranna Robinson, 2000. "How do broader monetary aggregates and divisia measures of money perform in McCallum's adaptive monetary rule?," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 181-204.
- Ray Fair, 2001.
"Optimal Control and Stochastic Simulation of Large Nonlinear Models with Rational Expectations,"
Yale School of Management Working Papers
ysm202, Yale School of Management, revised 24 Sep 2001.
- Ray Fair, 2003. "Optimal Control and Stochastic Simulation of Large Nonlinear Models with Rational Expectations," Computational Economics, Society for Computational Economics, vol. 21(3), pages 245-256, June.
- Horrace, William C., 1998. "Submodel estimation of a structural vector error correction model under cointegration," Economics Letters, Elsevier, vol. 59(1), pages 23-29, April.
- Ray C. Fair & E. Philip Howrey, 1995.
"Evaluating Alternative Monetary Policy Rules,"
Cowles Foundation Discussion Papers
1091, Cowles Foundation for Research in Economics, Yale University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.