Not as NGDP targeting is currently articulated, anyways.
Famed economist Michael Woodford gave a speech at the Federal Reserve’s annual conference in Jackson Hole, Wyoming recently that is stirring a lot of interest as it allegedly advocates nominal GDP (NGDP) targeting.
The NGDPers should take a more careful look, however. As we read it, Woodford argued that policies relying solely on expectations—the nom-de-guerre of monetary policy and monetarists—is likely to prove as fruitless when interest rates are near zero as the types of forward guidance he critiqued in the paper. Therefore, in order to stimulate economic activity, some combination of fiscal policy, monetary policy that essentially acts like fiscal policy (such as mortgage-backed security or MBS purchases), and coordination between fiscal and monetary authorities is almost certainly required.Symmetry Capital Management, LLC
Did Michael Woodford Endorse NGDP Targeting? Hell, No.
Art Patten
7 comments:
Bingo!
I think he's got the right takeaway from Woodford. When I looked at that paper I saw a long exposition on why asset purchases are ineffective policy, followed by damning-it-with-faint-praise overview of the expectations channel and concluding the whole affair with a quiet prayer for fiscal action.
This paper tweeted from Stephanie Kelton really brought home the futility of expectations based policy. It describes a really sad state of affairs where Fed policy degenerated into sticking a finger in the wind to guess at what markets were expecting and then moving policy to chase those expectations. A single, unwritten mandate to maintain the illusion of their own credibility.
Thanks for posting this, Mike. I'll be posting an update today.
Good quotes from Dmitri in this article on Woodford's paper:
http://www.institutionalinvestor.com/Article/3084826/GDP-Targeting-The-Real-Message-from-Jackson-Hole.html
"Dimitri Papadimitriou, the president of the Levy Economics Institute of Bard College in Annandale-on-Hudson, New York, is also wondering how the Fed would put a strategy of targeting nominal GDP into practice. “How do you do this?” he asks. “There is no reliable transmission channel from monetary policy to GDP. The evidence is clear about that,” he says."
“There is no reliable transmission channel from monetary policy to GDP. The evidence is clear about that,”
Right, the presumed transmission mechanism is a change in expectations.
The idea seems to be that expectation will change if the Fed sets its target based on NGDP targeting instead of inflation targeting. But since the Fed has no direct means of affecting GDP, the obvious assumption is that the increase in NGDP will be due to inflationary expectations.
well, the Fed could do the same thing by setting its inflation target higher than the current 2%.
So the expectations theory posits an expectation that it's premise about the expectations theory is true.
If you repeat expectations enough, you expect it.
They're all on expectorants?
Who knew that the Fed ran on mucukinetics!
I liked this line at the end:
in 1973, when the U.S. officially went off the gold standard, everything changed—except the macro textbooks!
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