Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/81973 
Authors: 
Year of Publication: 
1999
Series/Report no.: 
EPRU Working Paper Series No. 1999-23
Publisher: 
University of Copenhagen, Economic Policy Research Unit (EPRU), Copenhagen
Abstract: 
Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy under consideration is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial interest rate behavior that improves the inflation-output gap trade-off. Somewhat paradoxically, inflation targeting is relatively less favorable the more society cares for inflation, and the more persistent are the effects of inflation-generating shocks.
Document Type: 
Working Paper

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