Skip to main content Accessibility help


  • Michael T. Belongia (a1) and Peter N. Ireland (a2)

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.

Corresponding author
Address correspondence to: Michael T. Belongia, Department of Economics, University of Mississippi, Box 1848, University, MS 38677, USA; e-mail:
Hide All
Anderson, Richard G. and Jones, Barry E. (2011) A comprehensive revision of the monetary services (Divisia) indexes. Federal Reserve Bank of St. Louis Review 93, 325359.
Barnett, William A. (1978) The user cost of money. Economics Letters 1, 145149. Reprinted in William A. Barnett and Apostolos Serletis, The Theory of Monetary Aggregation, pp. 6–10. Amsterdam: Elsevier, 2012.
Barnett, William A. (1980) Economic monetary aggregates: An application of index number and aggregation theory. Journal of Econometrics 14, 1148. Reprinted in William Barnett and Apostolos Serletis, The Theory of Monetary Aggregation, pp. 11–48. Amsterdam: Elsevier, 2013.
Barnett, William A. (1982) The optimal level of monetary aggregation. Journal of Money, Credit and Banking 14, 687710. Reprinted in William Barnett and Apostolos Serletis, The Theory of Monetary Aggregation, pp. 125–149. Amsterdam: Elsevier, 2012.
Barnett, William A. (2012) Getting It Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy. Cambridge, MA: MIT Press.
Barnett, William A. (in press) Friedman and Divisia monetary measures. In Cord, Robert and Hammond, Dan (eds.), Milton Friedman: Contributions to Economics and Public Policy. Oxford, UK: Oxford University Press.
Barnett, William A., Chauvet, Marcelle, and Leon, Danilo Leiva (2014) Real-Time Nowcasting of Nominal GDP. MPRA Paper 53699, University Library of Munich, Germany.
Barnett, William A., Liu, Jia, Mattson, Ryan, and van den Noort, Jeff (2013) The new CFS Divisia monetary aggregates: Design, construction, and data sources. Open Economies Review 24, 101124.
Bean, Charles R. (1983) Targeting nominal income: An appraisal. Economic Journal 93, 806819.
Belongia, Michael T. and Ireland, Peter N. (2013). Instability: Monetary and Real. Working paper 830, Department of Economics, Boston College, Chestnut Hill.
Belongia, Michael T. and Ireland, Peter N. (in press) The Barnett critique after three decades: A New Keynesian analysis. Journal of Econometrics.
Chauvet, Marcelle and Potter, Simon (2013) Forecasting output. In Elliott, Graham and Timmermann, Allan (eds.), Handbook of Economic Forecasting, Vol. 2A, pp. 141194. Amsterdam: Elsevier.
Clark, Todd E. (1994) Nominal GDP targeting rules: Can they stabilize the economy? Federal Reserve Bank of Kansas City Economic Review (Third Quarter), 11–25.
Dueker, Michael J. (1993) Can nominal GDP targeting rules stabilize the economy? Federal Reserve Bank of St. Louis Review (May/June), 15–29.
El-Shagi, Makram, Giesen, Sebastian, and Kelly, Logan J. (in press). The quantity theory revisited: A new structural approach. Macroeconomic Dynamics.
Feldstein, Martin and Stock, James H. (1994). The use of a monetary aggregate to target nominal GDP. In Mankiw, N. Gregory (ed.), Monetary Policy, pp. 769. Chicago: University of Chicago Press.
Fisher, Irving (1920) Stabilizing the Dollar. New York: Macmillan.
Friedman, Milton (1968) The role of monetary policy. American Economic Review 58, 117.
Friedman, Milton and Schwartz, Anna Jacobson (1963). A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press.
Giannnone, Domenico, Reichlin, Lucrezia and Small, David (2008) Nowcasting: The real-time informational content of macroeconomic data. Journal of Monetary Economics 24, 665676.
Hallman, Jeffrey J., Porter, Richard D. and Small, David H. (1991) Is the price level tied to the M2 monetary aggregate in the long run? American Economic Review 81, 841858.
Hendrickson, Joshua R. (in press) Redundancy or mismeasurement? A reappraisal of money. Macro- economic Dynamics.
Hetzel, Robert L. (2008) The Monetary Policy of the Federal Reserve: A History. New York: Cambridge University Press.
Hetzel, Robert L. (2012) The Great Recession: Market Failure or Policy Failure? New York: Cambridge University Press.
Hodrick, Robert J. and Prescott, Edward C. (1997) Postwar U.S. business cycles: An empirical investigation. Journal of Money, Credit and Banking 29, 116.
Humphrey, Thomas M. (1973) Empirical tests of the quantity theory of money in the United States, 1900–1930. History of Political Economy 5, 285316.
Ireland, Peter N. (in press) The macroeconomic effects of interest on reserves. Macroeconomic Dynamics.
Laidler, David E. W. (2013) Professor Fisher and the quantity theory: A significant encounter. European Journal of the History of Economic Thought 20, 174205.
McCallum, Bennett T. (1988) Robustness properties of a rule for monetary policy. Carnegie-Rochester Conference Series on Public Policy 29, 173204.
McCallum, Bennett T. (1990) Could a monetary base rule have prevented the Great Depression? Journal of Monetary Economics 26, 326.
Meltzer, Allan H. (1987) Limits of short-run stabilization policy. Economic Inquiry 25, 114.
Motley, Brian (1988) Should M2 be redefined? Federal Reserve Bank of San Francisco Economic Review (Winter), 33–51.
Orphanides, Athanasios and Porter, Richard (2000) P* revisited: Money-based inflation forecasts with a changing equilibrium velocity. Journal of Economics and Business 52, 87100.
Orphanides, Athanasios and van Norden, Simon (2002) The unreliability of output gap estimates in real time. Review of Economics and Statistics 84, 569583.
Reynard, Samuel (2007) Maintaining low inflation: Money, interest rates, and policy stance. Journal of Monetary Economics 54, 14411471.
Serletis, Apostolos and Rahman, Sajjadur (in press) The case for Divisia money targeting. Macroeconomic Dynamics.
Spindt, Paul A. (1983) The money multiplier when money is measured as a Divisia quantity index. Economics Letters 13, 219222.
Spindt, Paul A. (1984) Modelling the money multiplier and the controllability of the Divisia monetary quantity aggregates. Review of Economics and Statistics 66, 314319.
Stock, James H. and Watson, Mark W. (1999) Forcasting inflation, Journal of Monetary Economics 44, 293335.
Sumner, Scott (1989) Using futures instrument prices to target nominal income. Bulletin of Economic Research 41, 157162.
Sumner, Scott (1995) The impact of futures price targeting on the precision and credibility of monetary policy, Journal of Money, Credit and Banking 27, 89106.
Tatom, John A. (2011) U.S. Monetary Policy in Disarray. Networks Financial Institute working paper 2011-WP-21. Terre Haute: Indiana State University.
Taylor, John B. (1993) Discretion versus policy rules in practice. Carnegie-Rochester Series on Public Policy 39, 195214.
West, Kenneth D. (1986) Targeting nominal income: A note. Economic Journal 96, 10771083.
Woodford, Michael (2012) Methods of policy accommodation at the interest-rate lower bound. In The Changing Policy Landscape, pp. 185288. Kansas City, MO: Federal Reserve Bank of Kansas City.
Working, Holbrook (1923) Prices and the quantity of circulating medium, 1890–1921. Quarterly Journal of Economics 37, 229253.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *



Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed