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Issues Concerning Nominal Anchors for Monetary Policy

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  • Robert Flood
  • Michael Mussa

Abstract

This paper presents a selective survey of issues relevant to the choice of nominal anchors for monetary policy. Section I reviews long price-level histories for the United Kingdom and United States, which reveal that the price level behaved very differently following WWII in these countries than it had done in previous post-war experiences. In particular following WWII the responsibilities of monetary policy expanded to encompass a business-cycle stabilization role and the nominal anchor shifted from the fixed anchor or price-level stability to the moving anchor of inflation-rate stability. The remaining sections of the paper review, in the context of a variety of models, some of the considerations that are relevant to setting the average inflation rate in countries without a fixed nominal anchor.

Suggested Citation

  • Robert Flood & Michael Mussa, 1994. "Issues Concerning Nominal Anchors for Monetary Policy," NBER Working Papers 4850, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4850
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    2. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234, Elsevier.
    3. Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    4. Raoul Lättemäe, 2001. "Monetary transmission mechanism in Estonia - some theorethical considerations and stylized aspects," Bank of Estonia Working Papers 2001-4, Bank of Estonia, revised 13 Oct 2001.
    5. H.P. Grãœner & C. Hefeker, 1995. "Domestic pressures and the exchange rate regime: why economically bad decisions are politically popular?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(194), pages 331-350.
    6. Drabek, Zdenek & Brada, Josef C., 1998. "Exchange Rate Regimes and the Stability of Trade Policy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 642-668, December.
    7. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank.
    8. J. Aschheim & G.S. Tavlas, 1994. "Nominal anchors for monetary policy: a doctrinal analysis," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 469-494.
    9. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    10. Reyna Vergara González & Elías Eduardo Gutiérrez Alva, 2014. "Evaluación del cumplimiento de los objetivos de inflación y el papel de las expectativas: evidencia para México, 1995-2012," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-32, November.
    11. Rubli Kaiser, Federico, 1996. "Autonomía del Banco Central bajo tensión financiera: la experiencia reciente de México," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34272, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    12. Bae, Kee-Hong & Bhattacharya, Utpal & Kang, Jisok & Rhee, S. Ghon, 2019. "Nominal stock price anchors: A global phenomenon?," Journal of Financial Markets, Elsevier, vol. 44(C), pages 31-41.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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