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Targeting Nominal Income: A Note

  • Kenneth D. West

This paper compares nominal income and monetary targets in a standard aggregate demand - aggregate supply framework. If the desirability of policies is measured by their effect on the unconditional variance of output, nominal income targeting is preferable if and only if the aggregate elasticity of demand for real balances is greater than one. This is precisely the opposite of the condition that in Bean (1984) is sufficient to make nominal income targeting preferable.This points out the importance of specification of supply and of objective function in work on nominal income targeting.

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File URL: http://www.nber.org/papers/w1835.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1835.

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Date of creation: Feb 1986
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Publication status: published as West, Kenneth D. Economic Journal, Vol. 96, December 1986, pp. 1077-1083.
Handle: RePEc:nbr:nberwo:1835
Note: EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. 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.
  2. Tobin, James, 1983. "Monetary Policy: Rules, Targets, and Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(4), pages 506-18, November.
  3. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  4. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  5. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  6. 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.
  7. 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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