Ah, and I assume NGDP means ‘nominal gross domestic product’. Why should the Fed use nominal GDP instead of real (inflation-adjusted) GDP as a measure for setting targets?
Very complicated question that I’m not at all qualified to speak on, but if you’re interested google Scott Sumner NGDP Targeting. Basically, rather than the current “dual mandate” of maintaining both low unemployment and a little inflation, targeting a fixed rate of NGDP growth would balance the mandate between unemployment and inflation. The idea became very popular in the blogosphere and in real economics literature in the aftermath of the 2008 crisis, where many believe the Fed was too slow to drop interest rates and should’ve been more concern about unemployment than inflation.
Ah, and I assume NGDP means ‘nominal gross domestic product’. Why should the Fed use nominal GDP instead of real (inflation-adjusted) GDP as a measure for setting targets?
Very complicated question that I’m not at all qualified to speak on, but if you’re interested google Scott Sumner NGDP Targeting. Basically, rather than the current “dual mandate” of maintaining both low unemployment and a little inflation, targeting a fixed rate of NGDP growth would balance the mandate between unemployment and inflation. The idea became very popular in the blogosphere and in real economics literature in the aftermath of the 2008 crisis, where many believe the Fed was too slow to drop interest rates and should’ve been more concern about unemployment than inflation.
Thanks, this is clarifying