A “WORKING” SOLUTION TO THE QUESTION OF NOMINAL GDP TARGETING

Abstract

Although a number of economists have tried to revive the idea of nominal GDP targeting since the financial crisis of 2008, very little has been said about how this objective might be achieved in practice. This paper adopts and extends a strategy first outlined by Holbrook Working and later employed in the P-Star model. It presents a series of theoretical and empirical results to argue that Divisia monetary aggregates can be controlled by the Federal Reserve and that the trend velocities of these aggregates exhibit the stability required to make long-run targeting of a nominal objective feasible.