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Unemployment Fluctuations and Nominal GDP Targeting

Roberto Billi

No 385, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

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)
Pages: 26 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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