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Targeting Nominal Income in a Dynamic Model

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  • Reinhart, Vincent

Abstract

The author analyzes the choice of monetary policy rule in a perfect-foresight-planning model. Maximizing agents plan their lifetime consumption decisions in the face of two rigidities. First, households hold money to aid trade. Second, today's price level is inherited from past contracting decisions so that changes in nominal aggregate demand fall on output in the short run. Given these rigidities, the central bank can set real balances in the short run and the author compares two mu = percent rules. His theoretical results suggest that the choice between fixed-money-growth and fixed-nominal-income-growth rules is an empirical assessment that depends on the distribution of shocks to the economy. Copyright 1990 by Ohio State University Press.

Suggested Citation

  • Reinhart, Vincent, 1990. "Targeting Nominal Income in a Dynamic Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 427-443, November.
    • Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:4:p:427-43
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    Cited by:

    1. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    2. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April.
    3. Henderson, Dale W. & McKibbin, Warwick J., 1993. "A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 221-317, December.
    4. Shigeto Kitano, 2004. "A Model of Balance‐of‐Payments Crises due to External Shocks: Monetary vs. Fiscal Approaches," Bulletin of Economic Research, Wiley Blackwell, vol. 56(1), pages 53-66, January.
    5. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
    6. Warwick McKibbin, 1997. "Which Monetary-policy Regime for Australia?," RBA Annual Conference Volume (Discontinued), in: Philip Lowe (ed.),Monetary Policy and Inflation Targeting, Reserve Bank of Australia.
    7. Shigeto Kitano, 2004. "Macroeconomic effect of capital controls as a safeguard against the capital inflow problem," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(3), pages 233-263.

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