Thursday, April 16, 2015

Bernanke? ... Bernanke?

Gentleman Ben takes a day off (again) from thinking about the most effective criticism of the Fed's response to the 2008 financial crisis, with this stratagem;
The second possible direction of change for the monetary policy framework would be to keep the targets-based approach that I favor, but to change the target. Suggestions that have been made include raising the inflation target, targeting the price level, or targeting some function of nominal GDP.
So, finally, the most authoritative scholar/policy expert on monetary policy--in a blogpost titled Monetary Policy for the Future--is going to get around to answering the Market Monetarists? No, that was just a feint;
Some of these approaches have the advantage of helping deal with the zero-lower-bound problem, at least in principle. My colleagues at the Fed and I spent a good deal of time during the period after the financial crisis considering these and other alternatives, and I think I am familiar with the relevant theoretical arguments.
 Although we did not adopt one of these alternatives, I will say that I don't see anything magical about targeting two percent inflation.
No one said it was magical.
My advocacy of inflation targets as an academic and Fed governor was based much more on the transparency and communication advantages of the approach and not as much on the specific choice of target.
How hard would would it be to communicate, 'The Fed will seek to have NGDP grow at a 5% annual rate.'? And, wouldn't that be even more transparent, since it doesn't require deflating with a price index?
Continued research on alternative intermediate targets for monetary policy would certainly be worthwhile.
Why is that, Ben?

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