Depending on the depth and duration of the ZLB episode, our calculations suggest that the adoption of a (temporary) price-level target, if well understood and credible, could eliminate more than half of the losses associated with the impossibility of providing additional monetary stimulus through a lower policy rate. NGDP-level targeting may thus merit consideration as a temporary unconventional monetary policy tool.
But NGDP targeting does not, in our view, amount to a complete policy framework. What is needed is a robust framework that remains appropriate and well understood under any circumstances. Why flexible inflation targeting provides a robust framework Flexible IT is such a framework for all seasons.