Towards a More Neutral Monetary Policy: Proposal of a Nominal Income Rule1

Abstract

Most central banks follow either an implicit or explicit inflation target. Many leading economists promote an active role for central banks in pursuit of that target. In this article it is shown how that strategy does not necessarily lead to a neutral monetary policy and, therefore, to the smooth working of markets in the long run. Accordingly, it proposes a nominal income rule that removes monetary disturbances from the economy.