Pages

 

Questions for Greg Mankiw

0 comments
Greg Mankiw recently referred to a paper where he assess which inflation rate should be targeted by the central bank.  Here is his conclusion:
[A]central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages. 
There are several good reasons laid out in the paper for targeting nominal wages.  Here I like to point out that stabilizing nominal wages is similar to stabilizing nominal income per capita.  It is not too much of a stretch to go from this to a nominal income or nominal GDP target.  In fact, Greg Mankiw and Robert Hall have a 1994 paper that sings the praises of a nominal GDP target, especially one that that targets the the consensus forecast of the nominal GDP level. 

So where does Greg Mankiw stand today on nominal GDP level targeting?  If he still supports it, does he see the need to return nominal GDP back to its pre-crisis trend or at least higher than its current level?  These are not just academic questions.  First, money demand in the United States remains elevated and, as a result, nominal spending is anemic and below any reasonable trend.  A nominal GDP level target would empower the Fed to meaningfully address this problem while still keeping long-term nominal spending expectations stable.  Second, some in the U.S. Congress want to narrow the Fed's mandate.  Adopting a nominal GDP level target is a great way to do that, as I argue here.  It would be nice to hear Greg Mankiw's answers to these questions.

P.S. Just to be clear, I am a big fan of nominal GDP level targeting.

0 comments:

Post a Comment

  • Greenspan's Cult of Personality... Review topics and articles of economics: Alan Greenspan was a legend in his time and there was no shortage of praise for him back then. For example, who can forget Bob Woodow's 2000 book Maestro: Greenspan's...
  • Yes Tyler, Low Interest Rates Matte... Tyler Cowen is wondering whether the Fed's low interest rates in the early-to-mid 2000s really were that important to the credit and housing boom of the early-to-mid...
  • The Eurozone Crisis: Deja Vu... Review topics and articles of economics: Randal Forsyth sees similarities between the current unfolding of the Eurozone crisis and that of the U.S. financial crisis a few years back:Just as the problem on this...
  • Charles Plosser and the Burden of F... The Economist's Free Exchange blog is shocked to hear this from Federal Reserve Bank of Philadelphia President Charles Plosser:"Since expectations play an important role...
  • Arnold Kling and Expected Inflation... Review topics and articles of economics: What do we know about expected inflation? According to Arnold Kling not much if we look to financial markets:I'm also not convinced that we can read expected inflation...
  • A Paper on Stabilizing Nominal Spen... Given the recent discussion on stabilizing nominal spending as a policy goal I found this article by Evan F. Koenig of the Dallas Fed to be interesting: The article...
  • Why The Low Interest Rates Mattered... Review topics and articles of economics: This is the second of two posts detailing why the Fed's low interest rate policies in the early-to-mid 2000s was one of the more important contributors to the credit and...
  • Why The Low Interest Rates Mattered... This is the first of a two-part follow up to my previous post, where I argued that the Fed's low interest rate policy was a key contributor to the credit and housing...
  • The Stance of Monetary Policy Via t... Review topics and articles of economics: There has been some interesting conversations on the stance of monetary policy in the past few days between Arnold Kling, Scott Sumner, and Josh Hendrickson. Part of...
  • Scott Sumner's New Best Friend:... Joseph Gagnon is calling for $6 trillion more in global monetary easing. This should not be too hard to implement since the Fed is a monetary superpower.Update: The...
 
Review topics and articles of economics © 2011 Questions for Greg Mankiw