NOMINAL GDP TARGETING AND CENTRAL BANK CONSERVATIVENESS

• Dai, Yuwen 
• Xu, Bin 

Indexed by

ABDC-B

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’.

Keyword

• monetary policy
• nominal GDP targeting
• central bank
• conservatism
• inflationary bias
• E52
• E58

Author Community

[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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