On the Performance of Nominal Income Targeting as a Strategy for Monetary Policy in a Small Open Economy

Alfred V. Guender and Julie Tam

No 263799, Department of Economics Discussion Papers from University of Canterbury - New Zealand

Abstract: There is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework. Is nominal income targeting equally attractive in a small open economy? This paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy. We find that both, the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect - to the real exchange rate, are important factors in assessing the attractiveness of nominal income targeting. In a small open economy where the size of both parameters is not negligible, a rule targeting the overall price level may actually be preferred to nominal income targeting.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 43
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Persistent link: https://EconPapers.repec.org/RePEc:ags:canzdp:263799

DOI: 10.22004/ag.econ.263799

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