Targeting Nominal Income: A Note
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.
|Date of creation:||Feb 1986|
|Date of revision:|
|Publication status:||published as West, Kenneth D. Economic Journal, Vol. 96, December 1986, pp. 1077-1083.|
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- 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.
- 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.
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- repec:nbr:nberre:0126 is not listed on IDEAS
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"Aggregate Dynamics and Staggered Contracts,"
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University of Chicago Press, vol. 88(1), pages 1-23, February.
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- 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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