Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 270: Nominal GDP Targeting and the Zero Lower Bound: Should We Abandon Inflation Targeting?
Roberto M. Billi ()
Additional contact information
Roberto M. Billi: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: I compare nominal GDP level targeting to flexible inflation targeting in a small New Keynesian model subject to the zero lower bound on nominal policy rates. First, I study the performance of optimal discretionary policies. I find that, for a standard calibration, inflation targeting under discretion leaves the economy open to a deflationary trap. Nominal GDP level targeting under discretion, by contrast, provides a firm nominal anchor to the economy. Second, I study simple policy rules and the role of smoothing in the rules. With smoothing, a Taylor-type rule performs as well as a nominal GDP level rule. These result suggest that inflation targeting should not be ditched. Still, it can be improved significantly, by using policy rate smoothing to anchor inflation firmly.
Keywords: nominal GDP target; optimal policy; simple rules; zero lower bound
35 pages, June 1, 2013
Full text files
rap_wp270_130613.pdf
Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2024-02-05 17:13:28.