TY - JOUR
T1 - Targeting nominal income growth or inflation?
AU - Jensen, Henrik
N1 - JEL Classification: E42, E52, F58
PY - 2002
Y1 - 2002
N2 - Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial policy making, which improves the inflation-output-gap trade-off. Somewhat paradoxically, inflation targeting may be relatively less favorable the more society dislikes inflation, and the more persistent are the effects of inflation-generating shocks
AB - Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial policy making, which improves the inflation-output-gap trade-off. Somewhat paradoxically, inflation targeting may be relatively less favorable the more society dislikes inflation, and the more persistent are the effects of inflation-generating shocks
U2 - 10.1257/00028280260344533
DO - 10.1257/00028280260344533
M3 - Journal article
VL - 92
SP - 928
EP - 956
JO - American Economic Review
JF - American Economic Review
SN - 0002-8282
IS - 4
ER -