H. Frisch, S. Staudinger:
"Inflation Targeting versus Nominal Targeting";
Journal of Economics,
In this paper we analyze two different target regimes, flexible inflation targeting and nominal income targeting, under discretion in a simple dynamic macro model.
The key results of our paper are: First, for both targeting regimes optimal monetary policy response leads to a shock-dependente feddback rule. Second, a demand shock is completely offset by both monetary strategies. Third, in case of a supply shock there is a significant difference between the two different targeting regimes. Under inflation targeting the policy makers face a trede-off between inflation and output stabilization. This trade-off depends on the weight omega the policy makers attach to output stabilization relative to inflation stabilization in the loss function. In contrast, under nominal income targeting policy makers face a constant trade-off between inflation and real output growth: an increase in inflation leads to a fall in real output growth by an equal amount.
Erstellt aus der Publikationsdatenbank der Technischen Universitšt Wien.