Saturday, August 25, 2012

Evan Soltas — NGDP Is a 'Simple Rule'

It is tempting to wonder whether NGDP targeting came up during the FOMC discussion, given Eric Rosengren and Charles Evans, two alternate members present at the meeting who are respectively the Federal Reserve Bank presidents of Boston and Chicago, have both endorsed it. Given explicit debate over the practice in the FOMC's November 2011 minutes, whether it entered the discussion is uncertain.

It should be obvious, though, that an NGDP level target would meet the Fed criteria voiced in the minutes. Above all, an NGDP target is a "simple rule" which fulfills the dual mandate, serves as the most clear of benchmarks, dodges the zero lower bound problem, and has been shown to outperform other rules under model uncertainty. "Hybrid" NGDP targeting, which assigns weight to both the level and rate of growth of NGDP, would most closely fit the Fed's interest in "inertial" policy rules.
Evan Soltas | economics & thought
NGDP Is a 'Simple Rule'
Evan Soltas

2 comments:

Neil Wilson said...

It may be simple but it doesn't explain why it is better that the central bank should 'overpay' for assets and reward asset owners that want to sell over just paying ordinary people to retire debt or spend.

It's the same numbskull 'efficient market' argument used to justify share buybacks over dividends.

y said...

yes, corporate welfare and welfare for the rich (NGDP targeting) is the solution to our problems. As always.