From long ago: What´s NGDP?


Desperate times call for desperate measures. This helps explain why nominal gross domestic product — that is, total GDP without inflation stripped out – has wound up at the center of a debate over how, and whether, the Federal Reserve can do more to stimulate the U.S. economy and lower the nation’s current 9.1% unemployment rate.

The beauty of the NGDP target, as proponents see it, is that it doesn’t differentiate between inflation and real GDP. So it doesn’t matter whether the gap is closed by three parts inflation and one part real GDP or one part inflation and three parts real GDP. The point is that the gap gets closed, because the Fed is able to be as aggressive as it needs to be, and the economy avoids a prolonged slump and chronically high unemployment a la the Great Depression. And by targeting NGDP, or a stated goal for the total size of the economy, instead of a 3% or 5% inflation rate, the Fed is better able to avoid the backlash that might otherwise undermine its ability to achieve said objective.

But would this really work? Now that NGDP is getting serious attention, this question becomes all the more important. Below, a (very abbreviated) round-up of the debate. Best to get up to speed as much as possible now, as it is only likely to gain momentum from here.

Further reading on NGDP targeting:

Scott Sumner’s work.

The Goldman note.

–Karl Smith, “NGDP Targeting in Real Life

–Interfluidity: “The Moral Case for NGDP Targeting” (with links to many others, including Paul Krugman and Brad DeLong, on this issue)

Bill Woolsey, emphasizing the monetarist position that underlies an NGDP target.

Heard on the Street: Inflated Expectations for Economic Fix (and Sumner’s response here.)

–Free Exchange: Understanding NGDP Targeting


Now there´s “light”:

Through a very generous donation of Kenneth Duda (a Silicon Valley entrepreneur who is supportive of market monetarism), the Mercatus Center has created a new program on monetary policy, and appointed me as director.

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