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Unemployment fluctuations and nominal GDP targeting

Roberto Billi

Economics Letters, 2020, vol. 188, issue C

Abstract: I evaluate the welfare performance of a target for the level of nominal GDP in a New Keynesian model with unemployment, accounting for a zero lower bound (ZLB) constraint on the nominal interest rate. Nominal GDP targeting is compared to employment targeting, a conventional Taylor rule, and the optimal monetary policy with commitment. I find that employment targeting is optimal when supply shocks are the source of fluctuations; however, facing demand shocks and the ZLB constraint, nominal GDP targeting can outperform substantially employment targeting.

Keywords: Employment targeting; Optimal monetary policy; Taylor rule; ZLB (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:188:y:2020:i:c:s0165176520300161

DOI: 10.1016/j.econlet.2020.108970

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