Targeting Nominal Income: A Note
NBER Working Paper No. 1835
This paper compares nominal income and monetary targets in a standard aggregate demand - aggregate supply framework. If the desirability of policies is measured by their effect on the unconditional variance of output, nominal income targeting is preferable if and only if the aggregate elasticity of demand for real balances is greater than one. This is precisely the opposite of the condition that in Bean (1984) is sufficient to make nominal income targeting preferable.This points out the importance of specification of supply and of objective function in work on nominal income targeting.
Published: West, Kenneth D. Economic Journal, Vol. 96, December 1986, pp. 1077-1083.