Institutional Affiliation: Harvard University
NBER Working Papers and Publications
|January 2015||Nominal GDP Targeting for Developing Countries|
with Jeffrey A. Frankel: w20898
The revival of interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. We consider the case for NGDP targeting for mid-sized developing countries, in light of their susceptibility to supply shocks and terms of trade shocks. For India, in particular, one major exogenous supply shock is the monsoon rains. NGDP targeting splits the impact of supply shocks automatically between inflation and real GDP growth. In the case of annual inflation targeting (IT), by contrast, the full impact of an adverse supply shock or terms of trade shock is felt as a loss in real GDP alone. NGDP targeting automatically accommodates supply shocks as most central banks with discretion would do anyway, while retaining the advantage of anchoring expectations as rules are designed ...
Published: Pranjul Bhandari & Jeffrey Frankel, 2017. "Nominal GDP targeting for developing countries," Research in Economics, vol 71(3), pages 491-506. citation courtesy of