On the desirability of NGDP targeting

Strangely, for many people, that title qualifies as clickbait.

It's actually the title used by this paper, and has attracted quite a bit of attention in the popular econ media, eg on Twitter, appearing in my timeline several times.  Partly because of the viral interest in nominal GDP targeting spread by the 'market monetarists'.

I want to emphasise only that this paper does not show that nominal GDP targeting beats how the Fed or the BoE's MPC, or the BoCanada would interpret 'inflation targeting'. They would view their mandates as providing them with a mandate to do optimal policy, as best they see it, with the quantitative target for inflation defining the expected rate of inflation over the long term. In the UK, a Treasury review of the BoE's mandate in 2013 interpreted things in just this way, which in the profession we'd call 'flexible inflation targeting'.

Nominal GDP targeting can beat other constrained policies [not least because it's not that dissimilar to 'flexible inflation targeting', which is optimal in the New Keynesian model] but rarely wins in general. Then again, neither does it lose by much. My beef with the NGDP lot was never that this was a dumb policy, just that it's not right to think it would change much about the world, in particular that it would magically solve problems we experienced during the crisis, or cure booms and busts semi-automatically, forever.

As a parting shot, this paper should serve as a reminder to NGDP/MMT magpies whose googling finds it of just how policy evaluation should be done.  It's a quantitative thing, involving setting out a model and trying policies out, and scoring them somehow.  If this isn't too self-contradictory, it's not done by repeatedly bashing readers over the heads with wordy blogs.