CEU Electronic Theses and Dissertations, 2013
| Author | Motyovszki, Gergő |
|---|---|
| Title | Nominal GDP Targeting as an Alternative Framework for Monetary Policy - A New Keynesian Approach |
| Summary | Nominal GDP level targeting has recently been proposed as a way of getting out of liquidity trap situations since the history dependent nature of level targeting regimes is argued to influence inflation expectations in the desired way. However, it is not clear whether nGDP level targeting can provide a well-functioning alternative to monetary policy even outside the extreme conditions of the zero lower bound. In this paper I investigate the above question within the context of a standard New Keynesian DSGE model with three di fferent shocks and no ZLB. I find that nGDP level targeting results in more stable real economic activity than strict inflation targeting, although at the expense of increased inflation volatility. However, when compared to a Taylor rule with a more flexible approach, where inflation targets can temporarily be missed, nGDP level targeting performs better both in terms of inflation and output (gap) volatility. It is also in this relation that the history dependent nature of nGDP level targeting can make a di fference by improving inflation/output trade-o ffs. These results indicate that nominal GDP level targeting might be worth considering as an alternative framework for monetary policy. |
| Supervisor | Campolmi, Alessia |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2013/motyovszki_gergo.pdf |
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