We'll see. I left the comment at Money Illusion but explicitly asked Scott to tell me if I have it wrong.
Benjamin Cole was asking why not target 6% NGDP rather than 3%. I tend to agree with him because 3% implies very low inflation if not zero. To be sure, at this point it's arguable that trend GDP is more 2% than 3% going forward which would then give us 1% inflation under a 3% NGDP target.
Here is Benjamin who always impresses me as a very nice guy-though a very devoted follower of Sumner and Market Monetarism.
"Okay I will put it this way: A 3% NGDP target will result in real growth about 1.8% and 1.2% inflation.
"A 6% NGDP target will result in a 3 + 3 split, about."
"That’s my story and I’m sticking with it. Print more money."
http://www.themoneyillusion.com/?p=30075#comment-396596
I tend to agree with Ben but just so I can see if I've finally cracked the code on what NGDP targeting is supposed to be about I made this interpretation:
"Ok Ben Cole I’m going to take a stab and unpack it. I think the idea is that it depends on trend RGDP."
"If for instance trend RGDP is 3% then a 3% NGDP target would mean 3% RGDP and and 0% inflation. A 6% NGDP target would mean 3% RGDP and 3% inflation."
We'll see what Sumner says but I think I've nailed his premise. Here is W. Peden on the benefits of 6% vs. 3% or vice versa.
"Some arguments for a higher NGDP target are (a) downward wage rigidity, i.e. the idea that workers are reluctant to accept nominal wage cuts, and (b) a smaller central bank balance sheet due to a higher opportunity cost of holding base money."
"Some arguments for a lower NGDP target are (a) reducing the deadweight loss caused by the different rates of return on cash and very short-term bonds, and (b) menu-costs."
"George Selgin is the most notable advocate for a very low NGDP target and Scott Sumner’s 5% is just about the highest rate I’ve seen a pro-NGDP target economist propose. In both cases, their position would depend on particular anticipated features of the economy in question, rather than a cast-iron law."
I seem to remember that when Sumner started in 2009 he was for a 6% NGDP target or even higher at one point. The larger point of this theory is that it's vital that the Fed hit the target. The choice between one target and another is less important.
Benjamin Cole was asking why not target 6% NGDP rather than 3%. I tend to agree with him because 3% implies very low inflation if not zero. To be sure, at this point it's arguable that trend GDP is more 2% than 3% going forward which would then give us 1% inflation under a 3% NGDP target.
Here is Benjamin who always impresses me as a very nice guy-though a very devoted follower of Sumner and Market Monetarism.
"Okay I will put it this way: A 3% NGDP target will result in real growth about 1.8% and 1.2% inflation.
"A 6% NGDP target will result in a 3 + 3 split, about."
"That’s my story and I’m sticking with it. Print more money."
http://www.themoneyillusion.com/?p=30075#comment-396596
I tend to agree with Ben but just so I can see if I've finally cracked the code on what NGDP targeting is supposed to be about I made this interpretation:
"Ok Ben Cole I’m going to take a stab and unpack it. I think the idea is that it depends on trend RGDP."
"If for instance trend RGDP is 3% then a 3% NGDP target would mean 3% RGDP and and 0% inflation. A 6% NGDP target would mean 3% RGDP and 3% inflation."
We'll see what Sumner says but I think I've nailed his premise. Here is W. Peden on the benefits of 6% vs. 3% or vice versa.
"Some arguments for a higher NGDP target are (a) downward wage rigidity, i.e. the idea that workers are reluctant to accept nominal wage cuts, and (b) a smaller central bank balance sheet due to a higher opportunity cost of holding base money."
"Some arguments for a lower NGDP target are (a) reducing the deadweight loss caused by the different rates of return on cash and very short-term bonds, and (b) menu-costs."
"George Selgin is the most notable advocate for a very low NGDP target and Scott Sumner’s 5% is just about the highest rate I’ve seen a pro-NGDP target economist propose. In both cases, their position would depend on particular anticipated features of the economy in question, rather than a cast-iron law."
I seem to remember that when Sumner started in 2009 he was for a 6% NGDP target or even higher at one point. The larger point of this theory is that it's vital that the Fed hit the target. The choice between one target and another is less important.
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