Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 644: Nominal Income Targeting in an Open-Economy Optimizing Model

Bennett T. McCallum () and Edward Nelson
Additional contact information
Bennett T. McCallum: Carnegie Mellon University, Postal: GSIA, Carnegie Mellon University, Pittsburgh PA 15213, USA
Edward Nelson: Bank of England, Postal: Threadneedle Street, London EC2R 8AH , United Kingdom

Abstract: The purpose of this paper is to examine the merits of monetary policy rules that utilize as their principal target variable the level or growth rate of some aggregate measure of nominal spending, such as nominal GDP, rather than a monetary aggregate or an index of inflation. The main objective is to develop new results concerning the possible desirability of nominal income targeting in the context of a quantitative structural macroeconomic model that represents an improved and extended version of the semi-classical framework presented in Mc-Callum and Nelson (1998).

Keywords: nominal income targeting; open-economy; monetary policy

JEL-codes: E50; E52

44 pages, August 1, 1998

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