Loathe as I am to piddle on Scott’s victory parade, I think some perspective is needed. NGDP targeting is catching on, it certainly has supporters within the UK Government like Vince Cable and his staff and in the commenteriat. Likewise, it is gaining ground with Jeffrey Frankel, A professor at Harvard and in Japan and with Paul Krugman and yada yada yada…things are looking up for this obscure policy, which is a good thing.
Yet this optimism doesn’t appear to be buoying markets. If NGDP targeting has been gaining popularity you’d like to see some sign of it in the stock markets, yet the last three months have been awful.
There’s an awful lot of red pixels. Of course inferring anything from market data is very difficult, that is after all the point of markets, to process information. Events in the real world of central banking are likely to dominate discussions of NGDP targeting. But, were monetary policy regime change to be likely you would expect to see some optimism in the numbers, and these are very pessimistic numbers indeed.
Scott should be happy with his progress so far, he has undoubtedly helped put NGDP targeting and monetary easing back onto the policy agenda, when it might have been ignored. However, he is premature in saying the future is bright when all signs suggest it is very likely quite dim.
Filed under: Economics, CAC, FTSE, NGDP Targeting, NIKKEI, S&P, Scott Sumner, Vince Cable
it’s one thing to think NGDP targeting would be an improvement upon inflation targeting, quite another to think that NGDP targeting is a cure all – so perhaps markets are concerned with woes it cannot fix. Or maybe just that the ECB doesn’t look like joining the list of NGDP targeters any time soon.
Or perhaps the market sides with the QE sceptics who think central banks lack an instrument to set the path of NGDP and hence expectations the NGDP target won’t be expected (especially because the NGDP targeters talk blithely about central banking buying every asset on the planet if necessary in extremis, well maybe we are in extremis but that ain’t going to happen)
NGDP is not a panacea, but it should serious work to boost stock markets were monetary disequilibrium to stop being a worry. Who cares if you have a great business idea, or a good degree, or work hard if there’s no demand. You’re buggered.
You’ve made plain what I’ve eluded to, where it matters (the insane ECB) monetary easing is still not on the cards. It’d be great if the fed adopted NGDP targeting, the rest of the world would still be screwed if the ECB doesn’t do something drastic.
Markets don’t act like they’re skeptical, they seem to respond strongly to individual signs of stimulus.
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