Issues Concerning Nominal Anchors for Monetary Policy

42 Pages Posted: 29 Mar 2010 Last revised: 30 Mar 2010

See all articles by Robert P. Flood

Robert P. Flood

International Monetary Fund (IMF) - Research Department; CENTRUM Business School; National Bureau of Economic Research (NBER)

Michael L. Mussa

International Monetary Fund (IMF) - Research Department; National Bureau of Economic Research (NBER)

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Date Written: September 1994

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

Flood, Robert P. and Mussa, Michael L., Issues Concerning Nominal Anchors for Monetary Policy (September 1994). NBER Working Paper No. w4850, Available at SSRN: https://ssrn.com/abstract=1578108

Robert P. Flood

International Monetary Fund (IMF) - Research Department ( email )

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CENTRUM Business School

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National Bureau of Economic Research (NBER)

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Michael L. Mussa

International Monetary Fund (IMF) - Research Department

700 19th Street NW
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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