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Journal of Economics and Finance

, Volume 41, Issue 2, pp 354–369 | Cite as

A simple empirical investigation into the optimal size of the NGDP Target and Level targeting

  • Ryan H. Murphy
  • Jiawen Chen
Article

Abstract

This paper constructs an index to study two questions within a growing school of macroeconomic thought, Market Monetarism. This school argues that the central bank has full control over all nominal variables in the economy and is solely responsible for aggregate demand management. To manage aggregate demand, Market Monetarism argues the central bank should target Nominal GDP. We address two issues of contention. First, we measure the optimal size of the optimal NGDP target. Second, we measure the extent to which central banks should engage in level targeting, i.e., whether central banks should correct for past errors when hitting their targets. We find evidence consistent with a five percent target but are unable to find consistent evidence regarding level targeting.

Keywords

Market monetarism NGDP targeting Level targeting Misery index 

JEL Classification

E3 E5 

Notes

Acknowledgments

The authors thank Andrew Young, Daniel Kuehn, Nicolas Cachanosky, and Colin O’Reilly for their helpful comments. We also thank the participants at the conference, “Should Central Banks Target NGDP?” at the Center for Free Enterprise at West Virginia University, where this paper was presented. Any remaining errors are solely our own.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.O‟Neil Center for Global Markets and FreedomSMU Cox School of BusinessDallasUSA
  2. 2.Suffolk UniversityBostonUSA

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