The Stabilizing Properties of a Nominal GNP Rule.

The author examines the ability of a nominal GNP rule for monetary policy to stabilize output and inflation. Other regimes considered are a money rule, an exchange rate rule, a price level rule, and discretion. The rules compare favorably to discretion to the extent that a time-consistent commitment to a nominal anchor is needed to eliminate an inflationary bias in the economy. The choice among the four rules depends on the relative magnitudes of the disturbances considered: supply shocks, velocity shocks, and exchange rate shocks. The nominal GNP rule dominates the exchange rate and other rules for plausible parameter values. Copyright 1995 by Ohio State University Press.