tag:blogger.com,1999:blog-8897997766931633186.post6940001897100561988..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: My Growth Path Target for GDPBill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8897997766931633186.post-17004617018358300522016-11-02T20:54:59.776-04:002016-11-02T20:54:59.776-04:00It’s hard to say where GDP rates will fall over in...It’s hard to say where GDP rates will fall over in next 6 months, but just need to go with market rumors and create up strategy accordingly. I mostly follow my broker OctaFX with their market updates which is very useful. I also follow this blog regularly and there is no guess work here that it’s equally helpful and with the connection of features like small spreads, stopout level of just 15% and many more benefits like that it’s all very useful.Jacobnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-71751691104945518352011-05-19T13:22:56.550-04:002011-05-19T13:22:56.550-04:00I wrote an awesome reply, but your blog deleted it...I wrote an awesome reply, but your blog deleted it...Johnhttps://www.blogger.com/profile/01457388998903348000noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-60156652327135483592011-05-19T07:05:10.558-04:002011-05-19T07:05:10.558-04:00I am not sure how productivity shocks are "co...I am not sure how productivity shocks are "compounding." <br /><br />A temporary shock to the growth path (like a 10% drop in output because of an earthquake) causes a 10% rise in the price level. <br /><br />If one assumes that nominal GDP would automatically fall because of the drop in real output with the earthquake, then I suppose one can blame the "rule" for causing this rapid inflation.<br /><br />Anyway, the price level would stablize at the higher level. <br /><br />An earthquake would mostly be a temporary shock--output would rise with reconstruction. As real output recovers, the price level falls.<br /><br />To the degree that all of this effort on reconstruction rather than say, building new and better capital goods, means that output never recovers to its previous growth path, the price level would be persistently higher.<br /><br />If the growth rate of potential output grows more slowly or for an extended period of time, then a given growth path of GDP would result in a higher inflation rate. (Or more rapidly, which would result in persistent deflation.)<br /><br />For example, if the CBO estimates are right, then keeping GDP growing 3% would have resulted in inflation as high as 1% for a time, and something like 1/2% for the next decade.<br /><br />I think a contitutional rule should have a provision for making adjustments in the growth rate. But nothing prompt and with a long lead. That productivity slow downs lead to mild inflation and rapid real growth leads to mild delfation is not really a problem. <br /><br />Emergency rebasing is also a possibility. However, one relatively easy way to make that automatic is to go with GDP per capita. <br /><br />If output falls 10% and the population is the same, having prices rise 10% for a time is a good signal of the real problem.<br /><br />I will grant, however, that if the population falls in half, having all money incomes (like money wages) and prices double, is pretty much pointless.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-6288733725334026682011-05-18T14:53:50.855-04:002011-05-18T14:53:50.855-04:00My biggest hesitation with targeting the levels is...My biggest hesitation with targeting the levels is what happens when there is a shock to real potential GDP or real potential GDP growth. If there is an earthquake that eliminated 10% of capacity, then real potential GDP would have a permanent impact. If long-term productivity growth slows, then the real potential GDP growth would slow. In either case (and their reverse), you would adopt worse policies than if you targeted the growth rate of GDP. This is because the errors compound in level targeting. This is normally sold as a good thing about level targeting since if the monetary authority lets nominal GDP fall sharply below target, then they would need to play catch up. However, if errors compound on the other side, it can be a blessing in disguise. I'm not sure which way the net benefits go on this issue, but I do not think it should be thrown to the side.<br /><br />In addition, when data is revised it can affect the whole series, which means you would have to update your path after every major GDP revision (not necessarily every revision since most do not affect data beyond the most recent quarter). If you want to make a futures market for nominal GDP, this would be an important technical hurdle. Alternately, you could set up the futures contracts as GDP growth of x% per quarter and target the compound growth so that it reaches your ideal level target.Johnhttps://www.blogger.com/profile/01457388998903348000noreply@blogger.com