Andrew Metrick of Yale University interviewed former Fed Chair Janet Yellen today. It was an interesting discussion and one where they talked about, among other things, what changes the Fed could bring about in light of the recently announced strategies, tools, and communication review to be held in 2019. Janet Yellen said her idea for reform "has much in common with NGDP targeting". Her response can be seen in the video below:
Glad to see her endorse a NGDPLT-like monetary regime.
Yes by all means, NGDPLT.
ReplyDeleteBut...we still could be in the economically suffocating grip of the tight-money crowd.
What is the NGDPLT? 3% higher per year? 4%? 6%
And can we go to money-financed fiscal programs to rectify a sluggish economy, or is that yet taboo?
And what if we have even just two years of no-inflation, no growth recession-lite?
Even with a tight 4% NGDPLT, then the Fed would have to try to get to an NGDPLT target 12% higher in one year. Really, can anyone imagine a central bank shooting for a NGDLT 12% higher in one year?
The Fed would be better guided by automatic prophylactic tools against recessions, such as money-financed payroll tax cuts whenever employment growth slows.
I do not anticipate central-bank culture being able to aggressively take on recessions after the fact, or ever making up lost ground on a NGDPLT. Sheesh, they won't even admit they made an error. Likely, after two years of economic stagnation, the Fed would wipe the slate clean and start fresh.