NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Alleged Instability of Nominal Income Targeting

Bennett T. McCallum

NBER Working Paper No. 6291
Issued in November 1997
NBER Program(s):   EFG   ME

Recently it has been argued that a monetary policy of nominal income and targeting" would result in dynamically unstable processes for output and inflation. That results holds in a" theoretical model that includes backward-looking IS an Phillips curve relations rather special and theoretically unattractive. The present paper demonstrates that replacement of" the special Phillips curve with one of several more plausible specifications overturns the" instability result, whether or not the IS equation is replaced with a forward-looking version. " Thus the instability result is quire fragile and therefore provides almost no basis for a negative" judgment regarding nominal income targeting.

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Document Object Identifier (DOI): 10.3386/w6291

Published: Published as "Nominal Income Targeting in an Open-Economy Optimizing Model", Journal of Monetary Economics, Vol. 43, no. 3 (June 1999): 553-578.

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