Nominal Spending & Output Growth – A long history

The chart shows nominal spending and output growth from 1800 to 2011. Important periods are highlighted.

Some statistics:


NGDP Growth

 (St. Dev.)

RGDP Growth

(St. Dev.)


1801 – 1965






1966 – 1979(Great Inflation)






1984 – 2007(Great Moderation)






2008 – 2011(Great Recession)






1801 – 2011






Note that since the 1980s, and increasingly, nominal and real growth have become more tightly knit. That´s a fact Bernanke and the FOMC should bear in mind. As David Beckworth and Ramesh Ponnuru argue in the latest issue of National Review in an article entitled “Monetary Regime Change – An old order fails”:

Twice in the last century, economic turmoil revealed the failure of a monetary regime and forced the West to abandon it for another. During the Great Depression of the 1930s one country after another abandoned the gold standard — a decision vindicated when they recovered in the same order. The inflation of the late 1960s and 1970s, meanwhile, persuaded most of the developed world’s central bankers to quit trying to “fine-tune” the real growth rate of the economy and instead concentrate on achieving price stability.

It is once again time for regime change. The crisis in Europe and our stagnation at home both have primarily monetary causes, and a solution will require a new approach to monetary policy that learns from both the successes and the failures of the past.

8 thoughts on “Nominal Spending & Output Growth – A long history

    • Of course, if you believe Scott, there shouldn’t be much difference between expected and actual inflation, as markets are really good at predicting these things.

  1. A weeks ago I posted this comment at Unlearning Economics:
    “As long as the CB is reasonably successful at targeting low inflation, NGDP and RGDP will obviously be highly correlated over time. However, if the CB were to target quantity rather than price, I’d imagine that RGDP and NGDP might be less correlated. Is it possible that much of the correlation stems from current CB policy and that changing policy would also change the relationship?”

    As shown in the chart, the relationship between NGDP and RGDP is least correlated in the post-WWII period during the period of high inflation and quantity targeting. Why will changing policy to promote higher inflation today not cause a breakdown in the correlation of the past 30 years, similar to the 1970’s?

    • Woj – Your comment is perfect. Nominal stability in the guise of “price stability” obtained under inflation targeting “did the trick”. A change in policy (target) today towards NGDP – Level Targeting is not intended to “promote” higer inflation, God forbid! It is intended to promote nominal stability and correct for the deficiencies inherent in IT. In fact, what transpires during the Great Moderation is exactly the nominal stability that flowed from a stable NGDP growth along a level path.

      • @Marcus – Thank you for the reply and emailed links.
        @Saturos – Thank you for the link as well. I actually do read/agree with Sumner far more often than Krugman (check out my blog). My hesitation on NGDPT stems more from a Minsky/MMR view regarding the impact of private credit creation/lending on AD (which I think Sumner and Krugman tend to minimize). Even still, I recognize that NGDPT may be less flawed than current IT and hence continue to follow these blogs so that I may eventually be convinced.

  2. Pingback: Is it time for a monetary regime change? A long history of Nominal Spending & Output Growth « Economics Info

  3. Pingback: Causal or Irrelevant?

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