NOMINAL GDP TARGETING AND CENTRAL BANK CONSERVATIVENESS

Yuwen Dai and Bin Xu

Bulletin of Economic Research, 2019, vol. 71, issue 3, 483-490

Abstract: In the literature on monetary economics, there is the ‘inflationary bias’ result which predicts that the rate of inflation will be biased towards a higher level under discretionary monetary policy than under a rule‐based policy regime. It is established that a credible nominal target can eliminate this ‘inflationary bias’. In this paper, we examine the case of nominal GDP targeting, which is a rule‐based monetary regime. Depending on the degree of conservativeness by the central bank, we show in a stylized model the choice of different combination of inflation and real GDP targets can still result in an ‘inflationary bias’, and there also exists the possibility of a ‘dis‐inflationary bias’.

Date: 2019
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https://doi.org/10.1111/boer.12189

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Persistent link: https://EconPapers.repec.org/RePEc:bla:buecrs:v:71:y:2019:i:3:p:483-490

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