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Issues Concerning Nominal Anchors for Monetary Policy

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  • Robert Flood
  • Michael Mussa

Abstract

This paper presents a selective survey of issues relevant to the choice of nominal anchors for monetary policy. Section I reviews long price-level histories for the United Kingdom and United States, which reveal that the price level behaved very differently following WWII in these countries than it had done in previous post-war experiences. In particular following WWII the responsibilities of monetary policy expanded to encompass a business-cycle stabilization role and the nominal anchor shifted from the fixed anchor or price-level stability to the moving anchor of inflation-rate stability. The remaining sections of the paper review, in the context of a variety of models, some of the considerations that are relevant to setting the average inflation rate in countries without a fixed nominal anchor.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4850.

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Date of creation: Sep 1994
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Publication status: published as Balino, Thomas J. and Carlo Cottarelli (eds.) Frameworks for Monetary Stability: Policy Issues and Country Experiences. International Monetary Fund, 1994.
Handle: RePEc:nbr:nberwo:4850

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  1. Greenwald, B & Stiglitz, Joseph E, 1987. "Keynesian, New Keynesian and New Classical Economics," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 119-33, March.
  2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
  3. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  4. Ben S. Bernanke & Mark Gertler, 1986. "Agency Costs, Collateral, and Business Fluctuations," NBER Working Papers 2015, National Bureau of Economic Research, Inc.
  5. Don Patinkin, 1993. "Israel's Stabilization Program of 1985, or Some Simple Truths of Monetary Theory," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 103-128, Spring.
  6. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  7. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  8. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
  9. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  10. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
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  12. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  13. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc.
  14. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, August.
  15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Cited by:
  1. J. Aschheim & G.S. Tavlas, 1994. "Nominal anchors for monetary policy: a doctrinal analysis," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 469-494.
  2. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank.
  3. Raoul Lättemäe, 2001. "Monetary transmission mechanism in Estonia - some theorethical considerations and stylized aspects," Bank of Estonia Working Papers 2001-4, Bank of Estonia, revised 13 Oct 2001.
  4. H.P. Grãœner & C. Hefeker, 1995. "Domestic pressures and the exchange rate regime: why economically bad decisions are politically popular?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 48(194), pages 331-350.
  5. C.A. Sims, 1999. "The Precarious Fiscal Foundations of EMU," DNB Staff Reports (discontinued) 34, Netherlands Central Bank.

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