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Nominal GDP targeting for a speedier economic recovery

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  • Eagle, David M.

Abstract

For U.S. recessions since 1948, we study paneled time series of (i) ExUR, the excess of the unemployment rate over the prerecession rate, and (ii) NGAP, the percent deviation of nominal GDP from its prerecession trend. Excluding the 1969-70 and 1973-75 recessions, a regression of ExUR on current and past values of NGAP has an R2 of 75%. Simulations indicate that NGDP targeting could have eliminated 84% of the average ExUR during the period from 1.5 years and 4 years after the recessions began. The maximum effect of NGAP on unemployment occurs with a lag of 2 to 3 quarters.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39821.

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Date of creation: 08 Mar 2012
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Handle: RePEc:pra:mprapa:39821

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Keywords: nominal GDP targeting; unemployment; recessions; business cycle;

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  1. Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc.
  2. Yaz Terajima & Jose-Victor Rios-Rull & Cesaire Meh, 2008. "Aggregate and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting," 2008 Meeting Papers 381, Society for Economic Dynamics.
  3. Bennett T. McCallum, 1997. "The alleged instability of nominal income targeting," Reserve Bank of New Zealand Discussion Paper Series G97/6, Reserve Bank of New Zealand.
  4. Carlo Altavilla & Matteo Ciccarelli, 2009. "The Effects of Monetary Policy on Unemployment Dynamics under Model Uncertainty - Evidence from the US and the Euro Area," CESifo Working Paper Series 2575, CESifo Group Munich.
  5. Meade, James E, 1993. "The Meaning of "Internal Balance."," American Economic Review, American Economic Association, vol. 83(6), pages 3-9, December.
  6. George A. Kahn, 2009. "Beyond inflation targeting: should central banks target the price level?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 35-64.
  7. Richard Reichel, 2004. "On the Death of the Phillips Curve: Further Evidence," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 341-348, Fall.
  8. Svensson, Lars E.O., 1997. "Price Level Targeting vs. Inflation Targeting: A Free Lunch?," Seminar Papers 614, Stockholm University, Institute for International Economic Studies.
  9. Ilker Domac & Magda Kandil, 2002. "On the performance and practicality of nominal GDP targeting in Germany," Journal of Economic Studies, Emerald Group Publishing, vol. 29(3), pages 179-204, September.
  10. Donald Coletti & Ren� Lalonde & Dirk Muir, 2008. "Inflation Targeting and Price-Level-Path Targeting in the Global Economy Model: Some Open Economy Considerations," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 326-338, June.
  11. 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.
  12. repec:cto:journl:v:24:y:2004:i:3:p: is not listed on IDEAS
  13. Malik, Hamza, 2005. "Price Level vs. Nominal Income Targeting: Aggregate Demand Shocks and the Cost Channel of Monetary Policy Transmission," MPRA Paper 456, University Library of Munich, Germany, revised Aug 2006.
  14. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December.
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Cited by:
  1. Eagle, David M, 2012. "Liquidity Traps and the Price (In)Determinacy of Monetary Rules," MPRA Paper 42416, University Library of Munich, Germany.

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