Title of article
Inflation targeting and nominal-income-growth targeting: When and why are they suboptimal?
Author/Authors
Jinill Kim، نويسنده , , Dale W. Henderson، نويسنده ,
Issue Information
روزنامه با شماره پیاپی سال 2005
Pages
33
From page
1463
To page
1495
Abstract
We compare optimal and simple interest-rate rules. Our model features optimizing agents, monopolistic competition in both product and labor markets, and one-period nominal contracts (for wages alone or for both wages and prices) signed before shocks are known. Exact solutions ensure that we obtain correct welfare rankings. Optimal rules maximize the unconditional expected utility of the representative agent with commitment subject to the information set of the policymaker. Even with monopolistic distortions, the optimal full-information rule makes the economy mimic the hypothetical full-flexibility equilibrium. Strict versions of inflation targeting, nominal-income-growth targeting, and other such simple rules are suboptimal under both full and partial information but flexible versions are optimal under certain partial-information assumptions. Nominal-income-growth targeting dominates inflation targeting for plausible parameter values.
Keywords
Nominal-income-growth targeting , Wage and price contracts , Optimal monetary policy , Interest-rate rule , Inflation targeting
Journal title
Journal monetary economics
Serial Year
2005
Journal title
Journal monetary economics
Record number
713058
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