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A fiscal perspective on nominal GDP targeting

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  • Salem Abo‐Zaid
  • Huiying Chen
  • Ahmed Kamara

Abstract

This paper studies fiscal policy in a model with nominal gross domestic product (GDP) targeting. We find that, with wage rigidity, nominal GDP targeting generates lower welfare losses than inflation targeting and a Taylor rule. On the other hand, adopting this regime makes standard fiscal policy rules, whereby distortionary tax rates are designed to respond to economic activity, dependent on the behavior of inflation instead. We also find that the fiscal multipliers with nominal GDP targeting are smaller than the multipliers under inflation targeting and the Taylor rule. Therefore, nominal GDP targeting does not necessarily outperform other monetary policy rules.

Suggested Citation

  • Salem Abo‐Zaid & Huiying Chen & Ahmed Kamara, 2021. "A fiscal perspective on nominal GDP targeting," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1641-1660, October.
    • Handle: RePEc:bla:ecinqu:v:59:y:2021:i:4:p:1641-1660
    DOI: 10.1111/ecin.13016
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    References listed on IDEAS

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