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.