Abstract Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial policy making, which improves the inflation-output-gap trade-off. Somewhat paradoxically, inflation targeting may be relatively less favorable the more society dislikes inflation, and the more persistent are the effects of inflation-generating shocks. (JEL E42, E52, F58)

Citation Jensen, Henrik. 2002. "Targeting Nominal Income Growth or Inflation? ." American Economic Review , 92 (4): 928-956 . DOI: 10.1257/00028280260344533 Choose Format: BibTeX EndNote Refer/BibIX RIS Tab-Delimited