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Targeting Nominal Income in a Dynamic Model

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  • Reinhart, Vincent

Abstract

The author analyzes the choice of monetary policy rule in a perfect-foresight-planning model. Maximizing agents plan their lifetime consumption decisions in the face of two rigidities. First, households hold money to aid trade. Second, today's price level is inherited from past contracting decisions so that changes in nominal aggregate demand fall on output in the short run. Given these rigidities, the central bank can set real balances in the short run and the author compares two mu = percent rules. His theoretical results suggest that the choice between fixed-money-growth and fixed-nominal-income-growth rules is an empirical assessment that depends on the distribution of shocks to the economy. Copyright 1990 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 22 (1990)
Issue (Month): 4 (November)
Pages: 427-43

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Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:4:p:427-43

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Reinhart, Carmen & Vegh, Carlos, 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," MPRA Paper 13898, University Library of Munich, Germany.
  2. Warwick McKibbin, 1997. "Which Monetary-policy Regime for Australia?," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
  3. Dale W. Henderson & Warwick J. McKibbin, 1993. "A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence," International Finance Discussion Papers 458, Board of Governors of the Federal Reserve System (U.S.).
  4. Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 14096, University Library of Munich, Germany.
  5. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
  6. Reinhart, Carmen & Vegh, Carlos, 1994. "Intertemporal consumption substitution and inflation stabilization:An empirical investigation," MPRA Paper 13427, University Library of Munich, Germany.

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