Scott Sumner is Alive and Well

He returns in a Bloomberg news story that calls on the Bank of England to abandon inflation targeting:

The Bank of England should consider replacing its inflation-targeting regime with one focusing on nominal gross-domestic-product growth, U.S. economist Scott Sumner said.  Targeting nominal GDP growth, which is not adjusted for inflation, would clarify the bank’s mandate and lessen its reliance on unreliable price indicators, Sumner, an economics professor at Bentley University in Waltham, Massachusetts, said in a report published today[.]

[...]

Inflation is “measured inaccurately and doesn’t discriminate between demand versus supply shocks,” Sumner said in a telephone interview. “Inflation often changes with a lag and sometimes when you go into recession, it doesn’t change very easily, but nominal GDP growth falls very, very quickly, so it’ll give you a more timely signal stimulus is needed.”

The U.K. central bank should target annual nominal GDP growth of about 4 percent to 5 percent, Sumner said. This would also lead to a better coordination of monetary and fiscal policy, he said. The Office for Budget Responsibility, the British government’s fiscal watchdog, last month cut its forecast for 2011 economic growth to 1.7 percent from 2.1 percent. 

The U.K. government shouldn’t be in a position where it is “reluctant to cut the budget deficit because of fear of the effect on the recovery,” Sumner said. “With nominal GDP targeting, you have the assurance that any slowdown in nominal GDP due to budget tightening can be offset by monetary policy.”

This last point seems particularly relevant to the U.S. economy now.  Hopefully, any contractionary effect from the current budget deal will be offset by the Fed. It sure would be easier for the Fed to do so  if  it had a nominal GDP level target.  Just saying.

Update: Here is the paper by Scott Sumner that motivated the above Bloomberg story.