MARK CARNEY, named late last year as Mervyn King's successor as governor of the Bank of England, wasted no time in setting high expectations (so to speak). In a December speech Mr Carney reckoned that a central bank facing a demand shortfall while stuck at the zero lower bound might do well to adopt a new target: a level of nominal GDP. He noted:
David Beckworth submits: I am late getting to this, but Mark Thoma wants to hear the case for nominal GDP targeting. This approach to monetary policy requires the Fed to stabilize the growth path for total current dollar spending. As an advocate of nominal GDP level targeting, I am more than happy to respond to Mark's request.
IT ISN'T too difficult to find praise for Mario Draghi these days, and, indeed, those economies whose primary exposure to Europe's troubles is via financial market jitters are quite happy that he seems (for the moment anyway) to have done a very nice job propping up European banks. Britain and central Europe may be still be sweating, but other big economies are doing much better than they were in December, thank you.
David Beckworth submits: One more thing about Swedish monetary policy. I showed in a previous post that the Swedes seem to be effectively targeting the level of nominal GDP. A nice thing about level targeting is that it has "memory," that is monetary policy does not forget past deviations from its target and works in subsequent periods to make it up.
David Beckworth submits: I have a new article up at National Review Online where I argue that the best way for Congress to narrow the Fed's mandate is through nominal GDP level targeting. One point mentioned in the piece is that because a nominal GDP target ignores aggregate supply shocks it dominates an inflation target. This applies equally well to a price level target.