Nominal GDP targeting: Policy rule or discretionary splurge?

• Nominal GDP targeting is an attractive way of conducting monetary policy.
• Nominal GDP targeting can be adopted in terms of levels or growth rates.
• The growth rate version corresponds to “timeless perspective” optimality.
• The levels version corresponds to “discretionary” optimality.
• These results are derived in a canonical New Keynesian model.

In a neo-canonical monetary policy model, targeting of nominal GDP in terms of growth rates (not growing levels) is analytically equivalent to adoption of a policy that is optimal from a “timeless perspective,” in the sense developed by Woodford and widely utilized in recent monetary policy analysis.