Nominal GDP Targeting and Central Bank Conservativeness

Abstract

In the literature on monetary economics, there is the ‘inflationary bias’ result which predicts that the rate of inflation will be biased towards a higher level under discretionary monetary policy than under a rule‐based policy regime. It is established that a credible nominal target can eliminate this ‘inflationary bias’. In this paper, we examine the case of nominal GDP targeting, which is a rule‐based monetary regime. Depending on the degree of conservativeness by the central bank, we show in a stylized model the choice of different combination of inflation and real GDP targets can still result in an ‘inflationary bias’, and there also exists the possibility of a ‘dis‐inflationary bias’.

Unemployment and Gross Domestic Product: Evidence from Papua New Guinea

“…Bullard & Singh (2020) show that nominal GDP targeting continues to characterize optimal monetary policy in this setting, and also analyze the incomplete markets equilibrium that exists when the monetary policy maker pursues a suboptimal policy, and show how an extension to more general preferences can limit the ability of the policymaker to provide full insurance to households in this setting. Dai & Xu (2019) examine the case of nominal GDP targeting, which is a rule-based monetary regime, depending on the degree of conservativeness by the central bank, in a stylized model the choice of different combination of inflation and real GDP targets can still result in an 'inflationary bias', and there also exists the possibility of a 'disinflationary bias '. Formánek (2020) shows that there is no sign of negative impact of renewable energy consumption on GDP growth, while the estimated overall effect is positive and statistically significant, its economic significance is small, and yet, given the data and economies considered, renewable energy consumption does not exert negative influence on economic growth rates.…”