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Nominal Gdp Targeting And Central Bank Conservativeness

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  • Yuwen Dai
  • Bin Xu

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’.

Suggested Citation

  • Yuwen Dai & Bin Xu, 2019. "Nominal Gdp Targeting And Central Bank Conservativeness," Bulletin of Economic Research, Wiley Blackwell, vol. 71(3), pages 483-490, July.
    • Handle: RePEc:bla:buecrs:v:71:y:2019:i:3:p:483-490
    DOI: 10.1111/boer.12189
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