Comments on: Another Goldman Sachs report on NGDP targeting

By: Scott Sumner

Scott Sumner — Fri, 18 Nov 2011 03:17:23 +0000

Doc, I agree.

Andrew. That’s right.

By: Andrew C.

Andrew C. — Fri, 18 Nov 2011 02:29:25 +0000

“That’s exactly my view. Do something effective, or do nothing. Don’t do things that make monetary policy look ineffective.”

In other words, do or do not, there is no try. Yoda for Fed chair.

Sorry, I know you’ve made that reference before (I looked it up before commenting), but I couldn’t help saying it again anyway..

By: Doc Merlin

Doc Merlin — Thu, 17 Nov 2011 12:45:46 +0000

Inflation targeting means that the central bank responds to adverse supply shocks by tightening money.

It also means that the central bank responds to positive supply shocks with monetary loosening.

Both of these are /bad!/
The central bank should NOT respond to supply shocks, but only to monetary problems. NGDP targeting takes care of that.

By: ssumner

ssumner — Tue, 15 Nov 2011 21:19:30 +0000

Dtoh, Maybe I reversed it.

I don’t have views on the issues you raise, although I presume they’d have some effect on the proposal. My hunch is that the effect would be small.

By: Dtoh

Dtoh — Tue, 15 Nov 2011 12:11:09 +0000

I get that. I just think you had the denominator and numerator reversed when you described it in your post.

Also have you given any thought to how the model is impacted by:

A) increasing trend to performance based comp, and
B) shift from higher rate overtime hours to lower rate base hours when output contracts

By: ssumner

ssumner — Tue, 15 Nov 2011 02:30:44 +0000

dtoh, If wages/NGDP rise, then each worker is grabbing a bigger share of NGDP. That means fewer jobs to go around.

By: dtoh

dtoh — Mon, 14 Nov 2011 08:38:37 +0000

Scott,
You say…”My basic model is that hours worked depends negatively on nominal wages divided by NGDP per capita.”

Isn’t it NGDP per capita divided by nominal wages and what do you mean by “depends negatively on”

Sorry if I’m being dense.

By: ssumner

ssumner — Mon, 14 Nov 2011 03:24:32 +0000

Paul, You asked,

If monetary policies can increase hours worked in the short run, but have no long run effect, must there not be a dip in hours worked after the short run completes (compared to what hours worked would have been), so that the total long run remains unaffected?

It depends where you start from, and other aspects of the model. If you start from a depressed condition, and just push the economy to “normal,” I’m not sure there has to be a relapse.

You asked;

“Don’t you ever wonder whether the things left out of your models (mental or otherwise) may have more of an effect than the things included in your models?”

Every single day.

By: Paul Andrews

Paul Andrews — Mon, 14 Nov 2011 00:42:14 +0000

@Scott,

Don’t you ever wonder whether the things left out of your models (mental or otherwise) may have more of an effect than the things included in your models?

By: ssumner

ssumner — Sun, 13 Nov 2011 18:16:03 +0000

Paul, I’ve certainly written down simple models in the past, but I don’t think others find them to be of much interest. I certainly don’t rely on GS to justify my policy preferences, I simply note that other experts, using other models, reached similar conclusions.

My basic model is that hours worked depends negatively on nominal wages divided by NGDP per capita. And nominal hourly wages are sticky. In that case monetary policies that affect NGDP, have a short run effect on hours worked, but no long run effect. Of course you can make the model more complex with hysteresis, etc. And you can model NGDP with the supply of money, op. cost of holding money, etc.

Thanks JimP.

Shane, Good question.

Steve, Yes, patents are government-created monopolies, not the free market.