 Nominal GDP stabilization: Chasing a mirageVipin P. Veetil and Richard E. Wagner The Quarterly Review of Economics and Finance, 2018, vol. 67, issue C, 227-236 Abstract: This paper argues that NGDP targeting is unlikely to produce macroeconomic stability. Contrary to the policy objective, NGDP targeting may increase macroeconomic turbulence. DSGE models that prove the effectiveness of NGDP stabilization policy rest on two assumptions. The first assumption is that macroeconomic volatility is a consequence of exogenous shocks to an otherwise stable system. The second assumption is that central banks can act upon aggregate variables. Neither of these assumptions is accurate. An economy is an ecology of interacting agents, some of whom have rivalrous plans. Macroeconomic volatility is an endogenous and intrinsic feature of such an economic system. Furthermore, central banks act upon some agents in the economic system, not on aggregate variables. The percolation of central bank actions through production networks can impede coordination efforts of economic agents during recessions, thereby increasing macroeconomic volatility. Keywords: NGDP; Recession; Monetary policy; Ecology of plans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:67:y:2018:i:c:p:227-236 DOI: 10.1016/j.qref.2017.07.003 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.