Should inflation targeting be abandoned in favour of nominal income targeting?

Stellenbosch Working Paper Series No. WP12/2013
 
Publication date: 2013
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

In the wake of the international financial crisis nominal income targeting has received renewed attention from a number of leading macroeconomists as alternative to inflation targeting. The case for nominal income targeting has been built on both positive and negative arguments. The negative case relates to perceived inadequacies of inflation targeting, including: the presumed lack of robustness of inflation targeting to aggregate supply shocks, inadequate concern with financial stability, as well as concerns with the accountability of inflation targeting central banks. The positive case for nominal income targeting is that it will better suit current macroeconomic circumstances and policy needs, without sacrificing the gains made by inflation targeting. A thorough evaluation of these arguments is presented in this paper with the conclusion that the case for nominal income targeting is weak compared with the way in which inflation targeting has been implemented internationally.

 
JEL Classification:

E52, E58

Keywords:

Nominal income target, inflation target, monetary policy

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