Thursday, June 24, 2010

Martin Wolf Calls for a NGDP Target

Okay, maybe not quite but he comes close in his most recent article where makes the following statement (emphasis added):
The argument for aggressive monetary expansion remains strong, though not equally everywhere, since the growth of broad money and nominal GDP is weak (see chart). So Friedman’s policy of “quantitative easing”, as it is called, still makes good sense. Am I recommending the economics of Robert Mugabe? No. As in everything else, it is the context that matters. At present, we have “too little money chasing too many goods”. In this environment, monetary policy must be aggressive.
Note that Martin Wolf did not say the argument for aggressive monetary expansion is the looming deflationary pressures. Rather he focused on the anemic aggregate demand growth as indicated by his "nominal GDP is weak" statement. He seems to be making the point that monetary authorities should be targeting the cause, not the symptom in their conduct of monetary policy. If so, then Martin Wolf should have a chat with his fellow FT columnist Samuel Brittan who has explicitly called for monetary policy to stabilize total cash spending. He should also take time to read Scott Sumner's article on targeting expected aggregate demand, a forward-looking approach to NGDP targeting. I hope he takes these steps and follows up with a column in the FT.

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