Nominal Income Targeting
AbstractThis paper discusses nominal income targeting as a possible rule for the conduct of monetary policy. We begin by discussing why a rule for monetary policy may be desirable and the characteristics that a good rule should have. We emphasize, in particular, three types of nominal income targets, which differ in how they respond to past shocks, to prices, and real economic activity. A key question is how any of these rules might be implemented in practice. We suggest that the consensus forecast of future nominal income could playa role in ensuring that the central bank does not deviate from its announced target. To show how economic performance might have differed historically if the Fed had been committed to some type of nominal income target, we offer simulations of a simple model of the economy. According to the simulations, the primary benefit of nominal income targeting would have been reduced volatility in the price level and the inflation rate. Whether real economic activity would have been less volatile is unclear.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4439.
Date of creation: Oct 1994
Date of revision:
Publication status: published as Robert E. Hall, N. Gregory Mankiw. "Nominal Income Targeting," in N. Gregory Mankiw, ed., "Monetary Policy" The University of Chicago Press (1994)
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Other versions of this item:
- Hall, R.E. & Mankiw, N.G., 1993. "Nominal Income Targeting," Harvard Institute of Economic Research Working Papers 1650, Harvard - Institute of Economic Research.
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