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The Stabilizing Properties of a Nominal GNP Rule

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  • Frankel, Jeffrey

Abstract

The author examines the ability of a nominal GNP rule for monetary policy to stabilize output and inflation. Other regimes considered are a money rule, an exchange rate rule, a price level rule, and discretion. The rules compare favorably to discretion to the extent that a time-consistent commitment to a nominal anchor is needed to eliminate an inflationary bias in the economy. The choice among the four rules depends on the relative magnitudes of the disturbances considered: supply shocks, velocity shocks, and exchange rate shocks. The nominal GNP rule dominates the exchange rate and other rules for plausible parameter values. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Frankel, Jeffrey, 1995. "The Stabilizing Properties of a Nominal GNP Rule," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 318-334, May.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:318-34
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