NGDP targeting makes sense. But then you go an say the Fed may target a new path. So now you're introducing a new variable - which path to shoot for. That presumably would be based on future productive capacity - and we know productivity forecasts are basically useless.
For NGDP targeting to be credible, the Fed would need to pick a path and stick to it. With only perhaps very rare "resets" for changes in demographics, which are observable.
By making the path itself an additional variable you introduce all the bad analysis and political maneuvering that was responsible for the historical periods where monetary policy went wrong in the first place.
A 4% NGDP growth path strikes me as very reasonable and achievable.
Hey, found this through your comment on Claudia's sub. It's good! I have a question:
Is this one of the arguments for a nominal gdp targeting framework that I hear beckworth go on about constantly in his macro musings podcast?
I'm a total newbie, but am wondering whether that would be a potentially limiting framework if our potential NGDP growth were higher than the target, but we undershot because our target was too low.
If I'm reading this right, might an answer be: well, yes that's a possible worry, but every time we increase nominal GDP really quickly, we get bad results, so best to limit its growth in the short run, and then if we think we're consistently overshooting, maybe revise the framework to have a higher target?
The kind of cases I have in mind are ones where some big innovation comes along and massively increases potential output right away. A NGDP target may not allow an economy to quickly realize that potential, but perhaps that's for the best if quick expansions lead to bad results.
Then again, maybe quick expansions only led to bad results _under the conditions of the old framework_ in which case, I'm not sure what to make of those historical data.
NGDP targeting makes sense. But then you go an say the Fed may target a new path. So now you're introducing a new variable - which path to shoot for. That presumably would be based on future productive capacity - and we know productivity forecasts are basically useless.
For NGDP targeting to be credible, the Fed would need to pick a path and stick to it. With only perhaps very rare "resets" for changes in demographics, which are observable.
By making the path itself an additional variable you introduce all the bad analysis and political maneuvering that was responsible for the historical periods where monetary policy went wrong in the first place.
A 4% NGDP growth path strikes me as very reasonable and achievable.
Hey, found this through your comment on Claudia's sub. It's good! I have a question:
Is this one of the arguments for a nominal gdp targeting framework that I hear beckworth go on about constantly in his macro musings podcast?
I'm a total newbie, but am wondering whether that would be a potentially limiting framework if our potential NGDP growth were higher than the target, but we undershot because our target was too low.
If I'm reading this right, might an answer be: well, yes that's a possible worry, but every time we increase nominal GDP really quickly, we get bad results, so best to limit its growth in the short run, and then if we think we're consistently overshooting, maybe revise the framework to have a higher target?
The kind of cases I have in mind are ones where some big innovation comes along and massively increases potential output right away. A NGDP target may not allow an economy to quickly realize that potential, but perhaps that's for the best if quick expansions lead to bad results.
Then again, maybe quick expansions only led to bad results _under the conditions of the old framework_ in which case, I'm not sure what to make of those historical data.