Arbeitspapier
Nominal GDP targeting and the zero lower bound: Should we abandon inflation targeting?
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.
- Language
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Englisch
- Bibliographic citation
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Series: Sveriges Riksbank Working Paper Series ; No. 270
- Classification
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Wirtschaft
Price Level; Inflation; Deflation
Monetary Policy
Central Banks and Their Policies
- Subject
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nominal GDP target
optimal policy
simple rules
zero lower bound
- Event
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Geistige Schöpfung
- (who)
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Billi, Roberto M.
- Event
-
Veröffentlichung
- (who)
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Sveriges Riksbank
- (where)
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Stockholm
- (when)
-
2013
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Billi, Roberto M.
- Sveriges Riksbank
Time of origin
- 2013
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