TY  - JOUR
AU  - Aizenman,Joshua
AU  - Frenkel,Jacob A.
TI  - Targeting Rules for Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1881
PY  - 1986
Y2  - October 1986
UR  - http://www.nber.org/papers/w1881
L1  - http://www.nber.org/papers/w1881.pdf
N1  - Author contact info:
Joshua Aizenman
Department of Economics;  E2
1156 High St.
University of California, Santa Cruz
Santa Cruz, CA  95064
Tel: 831/459-4791
Fax: 831/459-5077
E-Mail: jaizen@ucsc.edu

Jacob Frenkel
Dr. Jacob A. Frenkel
Chairman, JPMorgan Chase International
270 Park Ave 46th floor
New York, NY 10017
Tel: +1 212 270 2393
Fax: +1 212 270 2397
E-Mail: jacob.frenkel@jpmchase.com
AB  - This paper develops an analytical framework for the analysis of targeting rules for monetary policy. We derive the optimal money supply rule and analyze the implications of other monetary rules including rules that target nominal GNP, the price level, the monetary growth rate and the interestrate. An explicit welfare criterion is used in order to rank the alternative rules. In the model monetary policy is needed because labor market contracts set nominal wages in advance of the realization of the stochastic shocks. The principal result is that the welfare ranking of alternative targeting rules depends on whether the elasticity of labor demand exceeds or falls short of the elasticity of labor supply. Specifically, it is shown that if the demand for labor is more elastic than the supply, then targeting nominal GNP produces a smaller welfare loss than targeting the CPI which in turn produces a smaller welfare loss than interest rate targeting.
ER  -