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Guender, A. Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting. Credit and Capital Markets – Kredit und Kapital, 34(4), 526-553. https://doi.org/10.3790/ccm.34.4.526
Guender, Alfred V. "Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting" Credit and Capital Markets – Kredit und Kapital 34.4, 2001, 526-553. https://doi.org/10.3790/ccm.34.4.526
Guender, Alfred V. (2001): Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting, in: Credit and Capital Markets – Kredit und Kapital, vol. 34, iss. 4, 526-553, [online] https://doi.org/10.3790/ccm.34.4.526
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Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting

Guender, Alfred V.

Credit and Capital Markets – Kredit und Kapital, Vol. 34 (2001), Iss. 4 : pp. 526–553

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.34.4.526
Language
Multiple languages
Pages
28

Author Details

Alfred V. Guender, Christchurch/New Zealand

References

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Abstract

Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting

This paper shows that the instability of nominal income targeting in a simple backward-looking macro model disappears if the policymaker chooses to adopt a hybrid nominal income target, which is a special case of the optimal monetary policy. This form of nominal income targeting is compared to another form of optimal monetary policy, strict inflation targeting, so as to establish the conditions under which the former strategy is preferable to the latter. For most coefficient estimates reported in the literature hybrid nominal income targeting is likely to dominate strict inflation targeting as a strategy of monetary policy. We also analyze the two strategies of monetary policy using a forward-looking specification as our baseline model. In contrast to the policy frontier based on the backward-looking model, this policy frontier is not U-shaped; instead it implies a monotonic trade-off between the relevant parameters. In this model the strict inflation target becomes more attractive relative to the hybrid nominal income target as the Phillips Curve parameter increases in size. A strict inflation target is more likely to dominate a nominal income growth rate target than a hybrid nominal income target for certain values of the Phillips Curve parameter. (JEL E5)

Table of Contents

Section Title Page Action Price
Alfred V. Guender: Alternative Monetary Policy Rules\rand the Specification of the Phillips Curve: A Comparison\rof Nominal Income with Strict Inflation Targeting 526
I. Introduction 526
II. The Strategy of Nominal Income Targeting: A Comparison of Two Simple Models 528
III. Policy Analysis Based on the Backward-Looking Phillips Curve 530
1. A Hybrid Nominal Income Target 530
2. A Strict Inflation Target 533
3. Ranking the Two Policy Rules and Policy Implications 534
IV. Policy Analysis Based on the Forward-Looking Phillips Curve 539
1. A Hybrid Nominal Income Target 539
2. A Strict Inflation Target 541
V. Nominal Income Growth Targeting vs a Strict Inflation Target in the Forward-Looking Model 543
VI. Summary and Conclusion 545
References 547
Appendix 548
Summary: Alternative Monetary Policy Rules and the Specification of the Phillips Curve: A Comparison of Nominal Income with Strict Inflation Targeting 552
Zusammenfassung: Alternative Regeln der Geldpolitik und die Formulierung der Phillips-Kurve: Ein Vergleich zwischen der nominellen BSP-Zielsteuerung und der Inflationszielsteuerung 552
Résumé: Règles alternatives de politique monétaire et la spécification de la courbe de Phillips: une comparaison entre les objectifs de revenu nominal et les objectifs d'inflation 553

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