Wednesday, March 24, 2010

A Big Endorsement of NGDP Targeting

Somehow I missed this, but last week the legendary Samuel Brittan made the case for NGDP targeting in his weekly Financial Times column (hat tip The Money Demand). I couldn't have asked for better timing given my recent post making the same argument. Among other things, he says one of the big obstacles to a wider acceptance of a NGDP targeting rule is its name. He thinks a better marketing approach would be to call NGDP targeting a national cash objective. So instead of saying the Fed should "target NGDP" he would have us say the Fed should "maintain the growth of cash spending" at a some target rate. I find this interesting since I have always preferred to use terms like "stabilizing nominal spending" rather than "stabilizing NGDP." What he is suggesting, though, is to go one step further and replace the technical word "nominal" with the user-friendly word "cash." I think he is on to something here.

I suspect, however, that it will take more than just a reframing of NGDP targeting for it to become adopted by monetary authorities. What is needed is a broad-based reconsideration of this approach from academics, economic bloggers, journalists, and policymakers. We are off to a good start with folks like Scott Sumner and Samuel Brittan making the case. It would be great to have their efforts followed with a spat of papers evaluating this crisis from such a perspective. Maybe we could even get folks like Bennet McCallum, Greg Mankiw, Robert Hall, Menzie Chinn, Jeffrey Frankel, Evan Koenig, and Dennis Jansen who have carried the NGDP targeting banner before to rejoin the fight. In the meantime I will keep blogging about it.

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