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A simple empirical investigation into the optimal size of the NGDP Target and Level targeting

Author

Listed:
  • Ryan H. Murphy

    (SMU Cox School of Business)

  • Jiawen Chen

    (Suffolk University)

Abstract

This paper constructs an index to study two questions within a growing school of macroeconomic thought, Market Monetarism. This school argues that the central bank has full control over all nominal variables in the economy and is solely responsible for aggregate demand management. To manage aggregate demand, Market Monetarism argues the central bank should target Nominal GDP. We address two issues of contention. First, we measure the optimal size of the optimal NGDP target. Second, we measure the extent to which central banks should engage in level targeting, i.e., whether central banks should correct for past errors when hitting their targets. We find evidence consistent with a five percent target but are unable to find consistent evidence regarding level targeting.

Suggested Citation

  • Ryan H. Murphy & Jiawen Chen, 2017. "A simple empirical investigation into the optimal size of the NGDP Target and Level targeting," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 354-369, April.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9357-7
    DOI: 10.1007/s12197-016-9357-7
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market monetarism; NGDP targeting; Level targeting; Misery index;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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