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Nominal GDP targeting for a speedier economic recovery

  • Eagle, David M.

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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  1. Carlo Altavilla & Matteo Ciccarelli, 2009. "The Effects of Monetary Policy on Unemployment Dynamics Under Model Uncertainty. Evidence from the US and the Euro Area," CSEF Working Papers 231, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. McCallum, Bennett T. & Nelson, Edward, 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Seminar Papers 644, Stockholm University, Institute for International Economic Studies.
  3. Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2010. "Aggregate and welfare effects of redistribution of wealth under inflation and price-level targeting," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 637-652, September.
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  6. Steve Ambler, 2007. "Price-Level Targeting and Stabilization Policy: A Review," Discussion Papers 07-11, Bank of Canada.
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  8. 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.
  9. repec:cto:journl:v:24:y:2004:i:3:p: is not listed on IDEAS
  10. 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.
  11. 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.
  12. 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.
  13. 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.
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