Wednesday, November 2, 2011

Bernanke on Nominal GDP targeting

An unnamed reporter (and a big thank you to him,) asked Chairman Bernanke:

Has the fed discussed the idea of nominal gdp targeting? and what are your views on the advantages and disadvantages of that approach?

Bernanke responded:

"So the fed's mandate is, of course, a dual mandate. We have a mandate for both employment and for price stability. And we have a framework in place that allows us to communicate and to think about the two sides of that mandate. We talked yesterday about nominal GDP as an indicator, as an information variable, something to add to the list of variables that we think about. And it was a very interesting discussion. However, we think that within the existing framework that we have, which looks at both sides of the mandate, not just some combination of the two, we can communicate whatever we need to communicate about future monetary policy. So we are not contemplating at this time any radical change in framework. We are going to stay within the dual mandate approach that we've been using until this point."


  1. The longer he keeps "staring" at both sides of the mandate, when he has the opportunity to look just at a "combination of the two", policy will continue, after 3 years of "trying", to be unsatisfactory!

  2. Right. BB doesn't get it: nominal spending isn't an indicator to be used in helping the Fed to regulate P and y. It is itself the very thing the Fed ought to regulate. The idea that Py is some sort of composite of two more "fundamental" variables, where the Fed is supposed to be concerned with the stability of each, is a crude fallacy. Neither stability of y nor that of P is desirable per se. Stability of Py, on the other hand--which is to say stability of nominal aggregate demand--is desirable in itself.

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