Friday, March 26, 2010

More Support Across the Atlantic

Samuel Brittan is not the only one in the UK who thinks stabilizing total nominal spending should be the objective of monetary policy. Giles Wilke, the chief economist of Centre Forum and author of the blog Freethinking Economist, has come out with a paper that says the Bank of England's quantitative easing program needs to be adjusted to something like a nominal GDP target:
The Bank should explicitly target nominal growth for the duration of the slump. The current narrow focus on inflation leaves the markets expecting the withdrawal of QE before it has become effective. Such expectations badly undermine the policy. An explicit announcement of a high nominal growth target will help convince the economy that liquidity will remain available for long enough to reassure (and therefore encourage) investors.
This paper actually was the inspiration for Samuel Brittan's column in the Financial Times. It also shows how individuals from different sides of the political spectrum can agree on this issue. Also making the case for a nominal GDP target and hailing from the UK is Edmond Conway, economics editor of the Telegraph newspaper. He too was inspired by Wilke's paper and now wants the Bank of England to scrap its inflation target and move to a nominal GDP target. Wilke's paper, then, appears to be influencing the debate in the UK. This is good news.

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