Template-Type: ReDIF-Paper 1.0
Author-Name: Shakill Hassan
Author-Name: Chris Loewald
Title: Nominal GDP Targeting and the Monetary Policy Framework
Abstract: A nominal income target may provide credibility to a commitment to keep real interest rates exceptionally low, until a target output level is reached  even if expected inflation rises in the interim  in economies where nominal interest rates are effectively at the zero lower bound, which is not the South African case. There are practical difficulties with adopting nominal income targeting as the monetary policy framework. These include issues on the choice of a target level, risk of unanchored inflation expectations, and increased likelihood of error due to data uncertainty and revisions. Responsiveness to output growth and supply shocks  two important attractions of nominal income targeting  can be largely accommodated within flexible inflation targeting. Neither regime will automatically resolve the challenges posed to monetary policy by volatile capital flows and exchange rates, and asset price bubbles. The case for abandoning flexible inflation targeting, to adopt nominal income targeting, in South Africa and other emerging economies, is not compelling.
Creation-Date: 2013-10-31
File-URL: http://www.resbank.co.za/content/dam/sarb/publications/working-papers/2013/5965/WP1305.pdf
File-Format: application/pdf
File-Function: Revision
Number: 5965
Handle: RePEc:rbz:wpaper:5965