Economics at your fingertips  

Nominal GDP Targeting and the Zero Lower Bound: Should We Abandon Inflation Targeting?

Roberto Billi

No 270, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: I compare nominal GDP level targeting to flexible inflation targeting in a small New Keynesian model subject to the zero lower bound on nominal policy rates. First, I study the performance of optimal discretionary policies. I find that, for a standard calibration, inflation targeting under discretion leaves the economy open to a deflationary trap. Nominal GDP level targeting under discretion, by contrast, provides a firm nominal anchor to the economy. Second, I study simple policy rules and the role of smoothing in the rules. With smoothing, a Taylor-type rule performs as well as a nominal GDP level rule. These result suggest that inflation targeting should not be ditched. Still, it can be improved significantly, by using policy rate smoothing to anchor inflation firmly.

Keywords: nominal GDP target; optimal policy; simple rules; zero lower bound (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-06-01
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed

Downloads: (external link) ... rap_wp270_130613.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found ( [301 Moved Permanently]--> [301 Moved Permanently]-->

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().

Page updated 2020-02-26
Handle: RePEc:hhs:rbnkwp:0270