Bank of Finland paper backs nominal GDP as policy target
Price level or nominal GDP targeting is "on the whole better" than inflation targeting, according to a discussion paper published by the Bank of Finland yesterday.
In Targeting nominal GDP or prices: Guidance and expectation dynamics Kaushik Mitra and Seppo Honkapohja say this is only the case, however, when private agents fully understand what the alternative regimes entail as they face "significant uncertainties" when a new policy rule is adopted.
"Thus, if a move to either price-level or
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