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NOMINAL GDP TARGETING AND CENTRAL BANK CONSERVATIVENESS

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Abstract

In the literature on monetary economics, there is the ‘inflationary bias’ result which predicts that the rate of inflation will be biased towards a higher level under discretionary monetary policy than under a rule‐based policy regime. It is established that a credible nominal target can eliminate this ‘inflationary bias’. In this paper, we examine the case of nominal GDP targeting, which is a rule‐based monetary regime. Depending on the degree of conservativeness by the central bank, we show in a stylized model the choice of different combination of inflation and real GDP targets can still result in an ‘inflationary bias’, and there also exists the possibility of a ‘dis‐inflationary bias’.

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[Dai, Yuwen] Shanghai International Studies University (SISU); China Europe International Business School (CEIBS)

[Xu, Bin] China Europe International Business School (CEIBS)


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Source

Bulletin of Economic Research

ISSN:0307-3378

Year:2019

Issue:Online Version

Page:1

ESI Discipline:ECONOMICS & BUSINESS;

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