The Alleged Instability of Nominal Income Targeting

18 Pages Posted: 29 Jun 2000 Last revised: 7 Oct 2010

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

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Date Written: November 1997

Abstract

Recently it has been argued that a monetary policy of nominal income and targeting" would result in dynamically unstable processes for output and inflation. That results holds in a" theoretical model that includes backward-looking IS an Phillips curve relations rather special and theoretically unattractive. The present paper demonstrates that replacement of" the special Phillips curve with one of several more plausible specifications overturns the" instability result, whether or not the IS equation is replaced with a forward-looking version. " Thus the instability result is quire fragile and therefore provides almost no basis for a negative" judgment regarding nominal income targeting.

Suggested Citation

McCallum, Bennett T., The Alleged Instability of Nominal Income Targeting (November 1997). NBER Working Paper No. w6291. Available at SSRN: https://ssrn.com/abstract=226048

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