NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Targeting Nominal Income: A Note

Kenneth D. West

NBER Working Paper No. 1835
Issued in February 1986
NBER Program(s):   EFG

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.

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Published: West, Kenneth D. Economic Journal, Vol. 96, December 1986, pp. 1077-1083.

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