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Nominal GDP Targeting with Heterogeneous Labor Supply

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  • JAMES BULLARD
  • AARTI SINGH

Abstract

We study nominal gross domestic product (GDP) targeting as optimal monetary policy in a model with a credit market friction following Azariadis et al. (2018), henceforth ABSS. We extend the ABSS framework to allow for heterogeneous labor supply. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. We also analyze the incomplete markets equilibrium that exists when the monetary policymaker pursues a suboptimal policy, and show how an extension to more general preferences can limit the ability of the policymaker to provide full insurance to households in this setting.

Suggested Citation

  • James Bullard & Aarti Singh, 2020. "Nominal GDP Targeting with Heterogeneous Labor Supply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(1), pages 37-77, February.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:1:p:37-77
    DOI: 10.1111/jmcb.12615
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    References listed on IDEAS

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    Cited by:

    1. Lars E.O. Svensson, 2020. "Monetary Policy Strategies for the Federal Reserve," International Journal of Central Banking, International Journal of Central Banking, vol. 16(1), pages 133-193, February.
    2. James B. Bullard & Riccardo DiCecio, 2019. "Optimal Monetary Policy for the Masses," Working Papers 2019-009, Federal Reserve Bank of St. Louis, revised 25 Jul 2023.
    3. Azariadis, Costas & Bullard, James & Singh, Aarti & Suda, Jacek, 2019. "Incomplete credit markets and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 83-101.
    4. Nicolás Cachanosky, 2021. "Microfoundations and macroeconomics: 20 years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 34(2), pages 279-288, June.
    5. Nicolás Cachanosky, 0. "Microfoundations and macroeconomics: 20 years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 0, pages 1-10.

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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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