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A "Working" Solution to the Question of Nominal GDP Targeting

Author

Listed:
  • Michael T. Belongia

    (University of Mississippi)

  • Peter N. Ireland

    () (Boston College)

Abstract

Although a number of economists have tried to revive the idea of nominal GDP targeting since the financial market collapse of 2008, relatively little has been offered in terms of a specific framework for how this objective might be achieved in practice. In this paper we adopt a strategy outlined by Holbrook Working (1923) and employed, with only minor modifications, by Hallman, et al. (1991) in the P-Star model. We then present a series of theoretical and empirical results to show that Divisia monetary aggregates can be controlled by the Federal Reserve and that the trend velocities of these aggregates, by virtue of the properties of superlative indexes, exhibit the stability required to make long-run targeting feasible.

Suggested Citation

  • Michael T. Belongia & Peter N. Ireland, 2012. "A "Working" Solution to the Question of Nominal GDP Targeting," Boston College Working Papers in Economics 802, Boston College Department of Economics, revised 04 Jan 2013.
  • Handle: RePEc:boc:bocoec:802
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    References listed on IDEAS

    as
    1. Leeper, Eric M. & Zha, Tao, 2003. "Modest policy interventions," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1673-1700, November.
    2. Belongia, Michael T. & Ireland, Peter N., 2014. "The Barnett critique after three decades: A New Keynesian analysis," Journal of Econometrics, Elsevier, vol. 183(1), pages 5-21.
    3. Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1065-1083, October.
    4. Hendrickson, Joshua R., 2014. "Redundancy Or Mismeasurement? A Reappraisal Of Money," Macroeconomic Dynamics, Cambridge University Press, vol. 18(07), pages 1437-1465, October.
    5. William Barnett & Jia Liu & Ryan Mattson & Jeff Noort, 2013. "The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources," Open Economies Review, Springer, vol. 24(1), pages 101-124, February.
    6. Barnett, William A., 2012. "Getting it Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262516888, January.
    7. Richard G. Anderson & Barry E. Jones, 2011. "A comprehensive revision of the U.S. monetary services (divisia) indexes," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 325-360.
    8. Thoma, Mark A & Gray, Jo Anna, 1998. "Financial Market Variables Do Not Predict Real Activity," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 522-539, October.
    9. Eric M. Leeper & Jennifer E. Roush, 2003. "Putting "M" back in monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 1217-1264.
    10. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September.
    11. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
    12. Tatom, John, 2011. "Monetary policy in disarray," MPRA Paper 34607, University Library of Munich, Germany.
    13. Laidler, David, 1997. "Notes on the Microfoundations of Monetary Economics," Economic Journal, Royal Economic Society, vol. 107(443), pages 1213-1223, July.
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    Citations

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    Cited by:

    1. william, barnett, 2013. "Friedman and Divisia Monetary Measures," MPRA Paper 52310, University Library of Munich, Germany.
    2. Smith, A. Lee, 2016. "When does the cost channel pose a challenge to inflation targeting central banks?," European Economic Review, Elsevier, vol. 89(C), pages 471-494.
    3. Jonathan Benchimol & André Fourçans, 2016. "Nominal income versus Taylor-type rules in practice," Working Papers hal-01357870, HAL.
    4. Karl Pinno & Apostolos Serletis, 2016. "Money, Velocity, and the Stock Market," Open Economies Review, Springer, vol. 27(4), pages 671-695, September.
    5. Barnett, William A., 2014. "The joint services of money and credit," MPRA Paper 60336, University Library of Munich, Germany.
    6. William Barnett & Marcelle Chauvetz & Danilo Leiva-Leonx, "undated". "Real-Time Nowcasting Nominal GDP Under Structural Break," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201313, University of Kansas, Department of Economics.
    7. Johannes Van Der Pol, 2017. "Introduction to network modeling using Exponential Random Graph models (ERGM)," Working Papers hal-01284994, HAL.
    8. William A. Barnett & Marcelle Chauvet & Danilo Leiva-Leon, 2014. "Real-Time Nowcasting of Nominal GDP Under Structural Breaks," Staff Working Papers 14-39, Bank of Canada.
    9. repec:eee:jmacro:v:54:y:2017:i:pa:p:42-58 is not listed on IDEAS
    10. Belongia, Michael T. & Ireland, Peter N., 2017. "Circumventing the zero lower bound with monetary policy rules based on money," Journal of Macroeconomics, Elsevier, vol. 54(PA), pages 42-58.
    11. repec:eee:quaeco:v:67:y:2018:i:c:p:227-236 is not listed on IDEAS
    12. Benchimol, Jonathan & Fourçans, André, 2017. "Monetary Rule, Central Bank Loss and Household’s Welfare: an Empirical Investigation," Globalization and Monetary Policy Institute Working Paper 329, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    nominal GDP targeting; Holbrook Working; P-Star;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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