Nominal Income Targeting

In recent years prominent economists from diverse schools of thought have urged policymakers to establish long-term targets for nominal income. The common thread that emerges from these proposals is to extend the announced policy horizon beyond one year, thus clarifying the longer-run intent of policy. In this Economic Commentary, we describe the current framework for monetary policy and suggest that a multiyear nominal income target could be viewed as a practical extension of current policy procedures. To be useful, a nominal income target for monetary policy would need to be credible and hence achievable over a reasonably predictable period of time. In this article we also identify some potential problems for nominal income control, particularly during periods of disinflation.