Financial Times ♥ NGDP Targeting
This is FT Economics Editor Chris Giles on “The real lesson from Japan’s lost decade“:
Were the UK Treasury to set the BoE a target to hit a path for nominal GDP – the value of spending on goods and services – that rose at 5 per cent a year, many of the problems could be minimised. No one would have to pretend they knew how much slack there was in the economy or the precise supply capacity over the next two years. If supply was growing strongly, inflation would be lower and, if not, it would be higher. But it would be contained in both cases.
and here is Martin Wolf banging the drum again:
Finally, the country needs an ambitious macroeconomic target, but one that also caps inflation. As my colleague Chris Giles notes, the obvious one – in an environment of such uncertainty – is for nominal GDP. In the second quarter of this year, nominal GDP was more than 10 per cent below its pre-crisis trend, despite the big inflation overshoots. If the Bank were told to make up some of the lost ground, together with subsequent growth at up to 5 per cent a year, inflation might overshoot. But there might also be a surprising buoyancy of output and a recovery of at least some of the lost ground on productivity. It would surely be better to try and fail than to be sure of failing, by not trying.