Stable NGDP Growth (along a level target path) has been the best “stabilizer”

Scott Sumner writes: “It’s only logical; NGDPT is the next big thing”. “They will once again succeed” because it has already been successful!:

The Great Recession:  Now economists noticed that even if inflation was pretty well anchored, we could have quite a bit of real instability.  Once low rates of inflation were achieved, it seemed like high and unstable unemployment was a much bigger problem than modest variations in inflation (say in the 0% to 4% range.)  Now we need a nominal aggregate that will stabilize output better than an inflation target, while still producing fairly well-anchored inflation over the business cycle.  That’s going to be NGDP targeting, or something closely related.   It will happen. And they will once again succeed.  And then no more Great Depressions and no more Great Inflations and no more Great Recessions.  That’s called progress.

The visual: In phase-space diagrams.

Next big thing_1

Next big thing_2

Next big thing_3

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s