I just want to inform all my international readers that there are no institutional problems with the UK adopting NGDP level targeting. Failure is a choice.
First of all, for those keeping score, we’re still doomed. Secondly, the coalition can still, at any time, prevent doom, by changing the Bank of England’s mandate to target nominal gdp and to ease policy until it returns to trend.
If NGDP level targeting can be adopted quickly somewhere it is here. If somewhere needs to lead by example, I would recommend the UK too. NGDP is below trend, our banking system is weak, we are closely tied to the Eurozone, inflation expectation are falling and all anyone needs to do is to convince David Cameron’s cabal that this policy would get them elected. Conservatives *love* getting elected.
Britain has a parliamentary system with a lot of power vested in the executive. This is normally very good for getting things done. Sadly it also means you get bad legislation passed “when something needs to be done.” Something needs to be done and for a change it would be nice were the Government to do the right thing.
Filed under: Economics, Politics, Society, David Cameron, George Osbore, Mervyn King, NGDP Targeting
Why is a nominal income target so much better than an inflation target?
One, Steve Randy Waldman http://www.interfluidity.com/v2/3359.html who is as always almost impossible to excerpt.
Two, I think you should target the stickiest prices which are wages and debt and nominal income/production level targeting does a better job of this than an inflation target.
Massive divergences in predicted nominal income happen, level targeting make sure they are temporary. It also (if effective) makes sure they are less frequent and severe because they are expected to be so temporary.