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Nominal Income Targeting in an Open-Economy Optimizing Model

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  • McCallum, B.T.
  • Nelson, E.

Abstract

The purpose of this paper is to examine the merits of monetary policy rules that utilize as their principal target variable the level or growth rate of some aggregate reasure of nominal spending, such as nominal GDP, rather than a monetary aggregate or an index of inflation (either alone or in combination with some measure of the output gap). Because there is a large and rich literature on nominal income targeting, (briefly, NIT), we begin in Section 2 with a short review of existing arguments in its favor. Then in Section # we present some evidence which suggests that NIT is in effect utilized in practice in the United States.

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Bibliographic Info

Paper provided by Stockholm - International Economic Studies in its series Papers with number 644.

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Date of creation: 1998
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Handle: RePEc:fth:stocin:644

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Keywords: MONETARY POLICY ; GROSS DOMESTIC PRODUCT ; INFLATION ; UNITED STATES STOCKHOLM SWEDEN. 37p.;

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References

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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.:
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  1. Bennett T. McCallum, . "The Alleged Instability of Nominal Income Targeting," GSIA Working Papers 1998-20, Carnegie Mellon University, Tepper School of Business.
  2. Kenneth D. West, 1986. "Targeting Nominal Income: A Note," NBER Working Papers 1835, National Bureau of Economic Research, Inc.
  3. Meade, James E., 1977. "The Meaning of "Internal Balance"," Nobel Prize in Economics documents 1977-2, Nobel Prize Committee.
  4. 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.
  5. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
  6. Ratti, Ronald A, 1997. "The Stabilizing Properties of a Nominal GNP Rule: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 263-69, May.
  7. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  8. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  9. McCallum, Bennett T. & Nelson, Edward, 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Seminar Papers 644, Stockholm University, Institute for International Economic Studies.
  10. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
  11. Rudebusch, G.D. & Svensson, L.E.O., 1998. "Policy Rules for Inflation Targeting," Papers 637, Stockholm - International Economic Studies.
  12. Svensson, Lars E O, 1999. " Inflation Targeting: Some Extensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 337-61, September.
  13. Stephen G. Cecchetti, 1995. "Inflation Indicators and Inflation Policy," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 189-236 National Bureau of Economic Research, Inc.
  14. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  15. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  16. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc.
  17. Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
  18. Nicoletta Batini & Andrew G Haldane, 1999. "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England.
  19. Robert E. Hall & N. Gregory Mankiw, 1994. "Nominal Income Targeting," NBER Chapters, in: Monetary Policy, pages 71-94 National Bureau of Economic Research, Inc.
  20. Bennett T. McCallum & Edward Nelson, . "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," GSIA Working Papers 1998-22, Carnegie Mellon University, Tepper School of Business.
  21. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  22. Bennett T. McCallum, 1994. "A Semi-Classical Model of Price Level Adjustment," NBER Working Papers 4706, National Bureau of Economic Research, Inc.
  23. Svensson, Lars E.O., 1997. "Price Level Targeting vs. Inflation Targeting: A Free Lunch?," Seminar Papers 614, Stockholm University, Institute for International Economic Studies.
  24. Kollman, R., 1996. "The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: a Quantitative Investigation," Cahiers de recherche 9614, Universite de Montreal, Departement de sciences economiques.
  25. Ireland, Peter N., 1997. "A small, structural, quarterly model for monetary policy evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 83-108, December.
  26. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
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  28. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December.
  29. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
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  35. Martin Feldstein & James H. Stock, 1993. "The Use of Monetary Aggregate to Target Nominal GDP," NBER Working Papers 4304, National Bureau of Economic Research, Inc.
  36. McCallum, Bennett T, 1985. "On Consequences and Criticisms of Monetary Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 570-97, November.
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  41. Friedman, Milton, 1971. "A Monetary Theory of Nominal Income," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 323-37, March-Apr.
  42. Bennett T. McCallum, 1993. ""Specification and Analysis of a Monetary Policy Rule for Japan" Reply to Comments by Kunio Okina," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 55-57, December.
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  46. 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.
  47. Jeffrey C. Fuhrer, 1998. "An Optimising Model for Monetary Policy Analysis: Can Habit Formation Help?," RBA Research Discussion Papers rdp9812, Reserve Bank of Australia.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Friedman provided a theory for NGDP targeting
    by Lars Christensen in The Market Monetarist on 2011-11-06 08:18:19
  2. Nominal GDP Targeting Could Take the Place of Inflation Targeting
    by jfrankel in Jeff Frankels Weblog on 2012-06-13 22:10:10
  3. Jeff Frankel restates his support for NGDP targeting
    by Lars Christensen in The Market Monetarist on 2012-06-14 06:19:22
  4. "Inflation Targeting is Dead"
    by Mark Thoma in Economist's View on 2012-06-14 12:26:56
  5. Central Banks Can Phase in Nominal GDP Targets without Losing the Inflation Anchor
    by jfrankel in Jeff Frankels Weblog on 2012-12-26 02:59:14
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