NGDP futures targeting: Putting the Fear of God into the FOMC

When people come at NGDP futures targeting from a financial markets angle, they get hopelessly confused.  For instance, they worry about a potential lack of trading in NGDP contracts, whereas they should see that as a sign of success.

Today I’d like to suggest a different way of thinking about NGDP futures targeting.  In my view, the Fed can already do a perfectly adequate job of NGDP level targeting, even without tacking on futures markets.  So then why tack on the futures markets?  The answer is simple, they did not do a good job of maintaining NGDP stability during 2008-09, and NGDP futures targeting would force them to do so.

Go back to the 1990-2007 period, when NGDP rose at a pretty steady rate of around 5%/year.  And that was accomplished even without targeting NGDP.  Had they been targeting NGDP instead of inflation in the late 1990s, money would have been slightly tighter, making the resulting boom a bit milder, and (probably) also moderating the already very mild 2001 recession.  They did extremely well, and if they’d actually tried to target NGDP they could have done even better.

What about 2008-09?  It wasn’t just one mistake, it was several.  They focused on inflation, which was high in mid-2008, not NGDP growth that which was slowing sharply.  They focused on (high) past inflation, not TIPS spreads that showed falling inflation expectations late in 2008.  They focused on rescuing banking, not maintaining adequate AD.  (Indeed Bernanke basically admitted this failing (in his memoir) for the specific September 2008 meeting.)  They were squeamish about using unconventional policy instruments aggressively enough (although rates didn’t even hit zero until December 2008).

Obviously if there had been a NGDP futures policy in effect in late 2008, I would have been selling NGDP futures short like crazy.  Lots of other people would have as well, and the Fed would have been exposed to massive losses.

At this point many people get confused, assuming this is how I think things would have actually played out.  Not likely. The Fed would have been terrified of losing a boatload on money on bad NGDP bets.  Imagine explaining to Congress that you screwed up monetary policy so badly that you created a Great Recession, and to top it off you lost zillions of taxpayer funds.  It wouldn’t happen that way.

Instead, the real purpose of NGDP futures markets is to put the Fear of God into the FOMC.  They force it to do what it was already quite capable of doing, but held back due to either ignorance or fear of aggressive use of unconventional instruments.  Ironically, with a 5% NGDP target in 2008, level targeting, we would never had hit the zero bound, and we would never have had to rely on unconventional tools.  But even if we did, the Fed would have done “whatever it takes” to keep NGDP expectations on target.

Because I think the Fear of God would have made the Fed do what it should have done in any case, I think it’s quite possible that there would be little trading of NGDP futures contracts.  But I don’t care, because that “little trading” would be a sign of success.

PS.  Think of this as a variation of Lars Christensen’s famous “Chuck Norris effect”.  In this case Chuck is in the FOMC conference room in 2008, standing right behind Bernanke.  He whispers the following in Ben’s ear:

In your heart, what policy do you think is most likely to provide on-target aggregate demand in 2009?  The weak plan your staff prepared, or the aggressive steps you recommended to the Japanese back in 1999?  Keep in mind that I have a club in my hand, and plan to beat you all senseless if two things happen:

1.  Your plans fails to provide on target NGDP expectations.

2.  The market ends up being right and you end up being wrong.

OK Ben, deep down what do you think the Fed needs to do to provide 5% NGDP growth in 2009?

I want FOMC members to quake in their boots, and adopt a policy stance that roughly balances the short and long positions.  If that “balance” occurs with zero trades, that’s fine with me.  Indeed I hope they are such cowards that they refuse to take a stand, and meekly adjust the base until the long and short positions are balanced.  But if they want to take a bold stand  . . . well let’s just say I hope it works out better than when they overruled market forecasts, and predicted 4 rate increases in 2016!

PPS.  An update to Noah Smith’s recent post provides a great example of how thinking about this market from a finance angle throws people off.  Smith says:

Sumner seems to have thought very little about how markets actually become efficient. Scott, you need price discovery.

That’s not what NGDP futures targeting is all about.  It’s not price discovery, the price is pegged at 5%, it’s monetary instrument setting discovery.  I would recommend Noah look at Bernanke and Woodford’s 1997 JMCB paper, which makes it very clear that for this futures targeting approach to work it must be about forecasting the instrument setting that is appropriate, not about price discovery.  (I wonder if John Cochrane has also “thought really little about how markets become efficient”.)

Here’s an analogy.  The old international gold standard was not about the “discovery” of the proper nominal price of gold; it was about the discovery of the monetary base that would result in equilibrium occurring at the target price of gold.

And please don’t anyone tell me that the gold standard did not provide macro stability–I know that.  But it did stabilize gold prices, and NGDP targeting would stabilize NGDP expectations.  And (unlike stable gold prices) that’s a really good thing.  With stable NGDP expectations we will no longer have events like 2008-09.

If Noah Smith wants to seriously challenge the policy he needs to provide a plausible argument for large and time varying risk premia in the NGDP futures markets.  So far, no one’s been able to do that.  But that’s the sine qua non of any criticism.  Otherwise, I simply don’t care.  Manipulation? Who are the victims?  And did this occur under Bretton Woods?

And if it didn’t work, worst case is I get rich. Now that doesn’t sound so bad, does it?

HT: Foosion


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23 Responses to “NGDP futures targeting: Putting the Fear of God into the FOMC”

  1. Gravatar of José Romeu Robazzi José Romeu Robazzi
    22. July 2016 at 07:17

    Prof. Sumner I was just starting to write a comment on your previous post saying that what one should worry about is a NGDP Futures contract where the CB takes on one side, and there is heavy volume, because in that case it sure means the CB is dead wrong about the price. whenever one sets a price peg on anything, if one wants to be right, one should really hope for no trading at all.

    Now, if the CB is NOT part of the trading, and uses the free NGDP futures market as guidance only, with no obligation to follow through on any policy, then I agree that in order to trust the price set in the market one should hope for some reasonable amount of liquidity.

  2. Gravatar of Dikran Karagueuzian Dikran Karagueuzian
    22. July 2016 at 07:45

    Scott,

    You ask for

    “a plausible argument for large and time varying risk premia in the NGDP futures markets”

    If the Fed gets well-publicized and highly liquid markets of this type set up, we should then be able to see whether risk premia of this sort exist. This would be the ideal answer.

    But from where we are now I would expect *some* risk premium. Naively, in CAPM terms 5% NGDP growth is almost always better for the stock market than 0% NGDP growth. (In CAPM jargon, NGDP futures are not a zero-beta asset.) Thus, the NGDP futures price is not the best predictor of NGDP, and we should adjust for some sort of equity premium.

    If this is not clear, think about the forward price of equity index futures and the optimal prediction of the future price of that equity index.

    My intuition is that at the time scale of a year this effect is not a big deal, but also that it is not zero. And we should expect it to be time-varying if we think equity premia are time-varying.

  3. Gravatar of danyzn danyzn
    22. July 2016 at 07:46

    Here’s an analogy which may be helpful. Think of the Fed not as a counterparty at all, but as a kind of Walrasian auctioneer whose job is to clear the market for orange futures. Unlike a normal auctioneer, it does so not by adjusting the price (that is pegged) but by planting and destroying orange trees (over which it has a monopoly).

  4. Gravatar of Gary Anderson Gary Anderson
    22. July 2016 at 08:00

    “What about 2008-09? It wasn’t just one mistake, it was several. They focused on inflation, which was high in mid-2008, not NGDP growth that which was slowing sharply. They focused on (high) past inflation, not TIPS spreads that showed falling inflation expectations late in 2008. They focused on rescuing banking, not maintaining adequate AD. (Indeed Bernanke basically admitted this failing (in his memoir) for the specific September 2008 meeting.) They were squeamish about using unconventional policy instruments aggressively enough (although rates didn’t even hit zero until December 2008).”

    This is absolutely correct. Appreciate MM’s for showing the truth about this.

    But it is still all about the banks and bond demand, IMO, Scott. They are still weak and there is massive exposure to collateral that must remain strong, meaning low yielding.

  5. Gravatar of rayward rayward
    22. July 2016 at 09:03

    Since I’m no economist, I don’t have to pretend that monetary policy is made with precision, using complex math equations crafted by quants and supercomputers. No, it’s mostly ad hocery, especially during times of crisis. Considering what Professor Ball has to say about Lehman, would the Fear of God have made the Fed and Treasury more or less likely to let Lehman fail?

  6. Gravatar of Benjamin Cole Benjamin Cole
    22. July 2016 at 09:10

    I like the futures market idea.

    But could an evil central banker trick markets by posturing one way, then take a huge position, and reverse course?

  7. Gravatar of ssumner ssumner
    22. July 2016 at 09:25

    Dikram, I agree that there would be some risk premium, but very much doubt it would be of macroeconomic importance. Think about this. There is now so little demand for hedging against NGDP risk that a NGDP futures market doesn’t even exit. That suggests that the proposed futures market would not have much of a risk premium.

    Danyzn, Excellent.

    Rayward, Perhaps less likely, but on the other hand NGDPLT (apart form the futures aspect) would make them more likely to let it fail.

    So the net effect is unclear.

  8. Gravatar of AbsoluteZero AbsoluteZero
    22. July 2016 at 09:50

    Scott,
    Right. I think this post is a good way to explain the idea.

    For normal markets, entities trade for a few reasons: to profit from price changes, to hedge (to prevent losses), to set prices, and to provide dealer function for entities wishing to enter and exit the market.

    Over at Econlog, one commenter said he thought with the NGDP futures market, he would profit when the Fed made a mistake, and he seemed to think that’s weird. And it is, if one thinks about it in terms of a normal market. But the NGDP futures market is not like a normal market. As you said, the “price” is already set. The goal is not to reduce price inefficiency, but inefficiency in Fed behavior.

    So, in a sense, to abuse a term from topology, this is like the “dual” of a normal market, where many things are inverted. Thinking this way, it’s actually natural to conclude that lack of trading is a sign things are working.

    As for risk premia, I wonder what Antti Ilmanen (author of Expected Returns, Wiley, 2011) would think of this. I agree with you, though, that the lack of such a market today is telling.

  9. Gravatar of Gary Anderson Gary Anderson
    22. July 2016 at 10:05

    Nice to see that the ECB believes in Friedman, that you get base money into the hands of the people. This is real monetarism, Scott and the second wave was just released. What do you think? Don’t hit me too hard as you hurt my feelings last time.

    http://www.talkmarkets.com/content/economics–politics/hope-for-the-real-economy-pigou-effect-tltro-helicopter-money?post=101055&uid=4798

  10. Gravatar of ssumner ssumner
    22. July 2016 at 10:17

    Absolutezero, Very good observations.

  11. Gravatar of RobertB RobertB
    22. July 2016 at 10:28

    Putting aside questions of humanity, which of the following produces better monetary policy?

    1) NGDP futures markets.
    2) Summary execution of central bankers if there’s a demand-side recession or demand-driven inflation.

    From this post, it sounds like the answer is 2; the markets aren’t there for market-y efficiency stuff, they’re there to strike fear into the hearts of disloyal bankers. If your answer is 1, there’s got to be something else going on other than the Fear of God.

  12. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    22. July 2016 at 10:31

    ‘I want FOMC members to quake in their boots, and adopt a policy stance that roughly balances the short and long positions.’

    Which is why you proposed that the Board members paychecks be linked to their votes, in your 2013 paper. I remarked at the time that that was my favorite part of the paper;

    http://hisstoryisbunk.blogspot.com/2013/07/the-sumner-on-our-discontent.html

    ————quote———-
    …there is a relatively simple way to reward monetary-policy decision makers. For example, assume that the Fed has a 3.65 percent nominal GDP growth target and that the committee sets the fed funds target at 2.25 percent, based on the preferences of the median voter on the Federal Open Market Committee (FOMC). Then the six hawkish FOMC members who advocated a fed funds target above 2.25 percent will presumably be concerned that the lower actual instrument setting will be too expansionary and will push the nominal GDP growth rate above 3.65 percent. The six dovish FOMC members would have expected below-target nominal GDP growth when the fed funds target was set at 2.25 percent.

    Which brings the part we like best;

    Next comes the first step toward a market-driven monetary policy regime. Assume that the salary of each voting member of the FOMC is tied to the accuracy of his or her NGDP forecasts. Thus, if actual NGDP growth turned out to be “too high”—that is, above 3.65 percent—then all those FOMC members who preferred a more contractionary policy stance (a higher fed funds stance) would receive a pay bonus, and those who voted for an even more expansionary policy would see their pay reduced.

    Their money is where their votes are. Now, those incentives need to be linked to the monetary base (ultimately what we, the people, use to buy stuff);

    The Fed would peg the price of NGDP futures at $1.0365, but only during the period where it was the target of monetary policy. During this period, changes in investor sentiment would affect the quantity of money, not the price of NGDP futures. For market expectations to determine monetary policy, there must be a link between NGDP futures purchases and sales, and the quantity of money. This link can be achieved by requiring parallel open-market operations for each NGDP contract purchase or sale. Because investors buying NGDP futures are expecting above-target growth in NGDP, the Fed should automatically reduce the monetary base each time an investor buys an NGDP futures contract, and it should automatically expand the base each time an investor sells an NGDP contract short. For instance, each $1 purchase of a long position in an NGDP futures contract might trigger a $1,000 open-market sale by the Fed. A purchase of a $1 short position would trigger a $1,000 open-market purchase by the Fed. In that case, investors would be effectively determining the size of the monetary base.

    The wisdom of the crowd would not be in guessing the number of jelly beans in the jar, but determining the number.
    —————–endquote—————

    When I pointed this out to Noah Smith a couple of days ago, he ignored me.

  13. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    22. July 2016 at 10:44

    I also pointed out back then;

    ————-quote————
    The above scheme isn’t the only one possible. Rather than focus on the Federal Funds Rate the Fed could use the price of gold, foreign exchange rates, or some other variable to accomplish the same thing; market-driven monetary policy.

    Which would not be perfect…just better than the way we do things now. But Sumner isn’t a wild-eyed radical, he’s willing to be patient and cautious;

    The first step will involve the Fed creating and subsidizing trading in an NGDP futures market, and perhaps in GDP-deflator and real-GDP futures markets as well. Over time, it will become possible to observe those markets’ track records. In particular, the Fed will be able to study whether the NGDP futures market can accurately predict policy errors. If so, then the next step will be for the Fed to use NGDP futures prices as one element in the monetary-policy decision-making process. Once it has achieved a comfort level with using this market, the Fed should make currency and reserves convertible into NGDP futures at a fixed price. This is the index futures convertibility approach that Woolsey advocates, which still gives the central bank some discretion over monetary policy—much like the classical gold standard. Eventually, the Fed may move to a full-fledged NGDP targeting regime, where it passively implements market instructions to adjust the monetary base.
    ———–endquote————

    I didn’t waste my time posting that to Noah Smith’s nor Zachary David’s blogs, but they are definitely guilty of making the[ir] perfect the enemy of the good monetary policy.

  14. Gravatar of Major.Freedom Major.Freedom
    22. July 2016 at 15:01
    Sumner seems to have thought very little about how markets actually become efficient. Scott, you need price discovery.

    That’s not what NGDP futures targeting is all about. It’s not price discovery, the price is pegged at 5%, it’s monetary instrument setting discovery.

    The fact that NGDP futures targeting is not about price discovery IS one problem with it. You are not rebuting Noah’s criticism. You are actually just conceding the criticism. It does not matter that YOU don’t care about the crucial function of price discovery in markets.

    Monetary instrument setting discovery? There is no market preferences discovery. People guessing right or guessing wrong about whether to short or long a non-market issuance futures, does not perform any coordinating pricing function in the macro-economy, for the 5% NGDP growth is itself not a pricing discovery function.

    I would recommend Noah look at Bernanke and Woodford’s 1997 JMCB paper, which makes it very clear that for this futures targeting approach to work it must be about forecasting the instrument setting that is appropriate, not about price discovery. (I wonder if John Cochrane has also “thought really little about how markets become efficient”.)

    But it cannot “work”, if by “work” we mean individuals are able to work through what other individual market preferences are.

    Price discovery tells us this. What is “appropriate” is price discovery, not socialist “instruments”.

    Of course, Smith used the term “price discovery”, but he has no clue what he means when he says that, because he too believes price discovery is taking place in socialist money monopolies.

    A socialist policy of 5% NGDP will not allow us to observe market preferences for the various money variables like demand for money holding, or interest rates, or prices, or spending. We would only be observing hampered preferences of the various money variables GIVEN the socialist policy is taking place.

    Sumner’s hollow pleas of “Let the market determine interest rates!” are distortions of what a market actually is. Markets require private property and open economic competition. An absence of private property and an absence of open economic competition, means an absence of a market.

    We cannot know what the market for money is like, without a market in money itself. This is basic logic. What Sumner would – safely and without infringing on his own intellectual investment – agree is the case for any other commodity.

    But because his own interests require money to remain socialist, he tells us money is somehow beyond economic law, and our interests are coercively infringed upon by his ideology.

    Here’s an analogy. The old international gold standard was not about the “discovery” of the proper nominal price of gold; it was about the discovery of the monetary base that would result in equilibrium occurring at the target price of gold.

    Why not use the analogy of an actual gold standard where the units are actual quantities of gold? You can’t even hypothetically write about a non-governmental MARKET system!

    In an actual gold standard, the price discovery is about exchange ratios between gold

    by weight

    , and real goods and services, that would maximize the utility of individual traders. If there is X amount of gold available for trade, buyers and sellers will haggle and “discover” the exchange ratios that maximize mutual gains. Any quantity will do. The entire world economy can function on one ounce of gold. If it cannot, then more gold will be produced, until mutual gains are again maximumally restored. If gold is not preferred, by market forces, then some other commodity can be used that increases utility.

    Threatening people with violence if they don’t pay taxes in paper notes issued by government, thus coercing people to seek that paper rather than what they find MORE valuable, is not “allowing market forces” in ANY monetary variable, even those not directly thought of by state thugs or their parasitic sheep flock.

    And please don’t anyone tell me that the gold standard did not provide macro stability–I know that. But it did stabilize gold prices, and NGDP targeting would stabilize NGDP expectations. And (unlike stable gold prices) that’s a really good thing. With stable NGDP expectations we will no longer have events like 2008-09.

    The gold standard did not take place. That is what you wrote. You have already admitted there was no gold standard.

    Why do you say “the gold standard did not provide stability”?

    And since when was macro-economic stability an ethical ideal or goal? New inventions and new preferences are macro destabilizing. Yes, yes they are. No, there is no necessity that a large scale discovery or new technology that puts huge quantities of existing production methods into obsolescence, has to suddenly and co-extensively be accompanied by replacement production methods such that there is no decrease to any “macro” variable. Price discovery requires macro variables to in fact be variable! For any government attempt to “stabilize” these macro variables will itself distort micro variables that make up coordination of individual preferences.

    If Noah Smith wants to seriously challenge the policy he needs to provide a plausible argument for large and time varying risk premia in the NGDP futures markets. So far, no one’s been able to do that.

    Nonsense. That is just you trying to force the debate to consist of your preferred range of discourse, where it is heads you win, tails they lose.

    To seriously challenge socialism, that requires laissez faire capitalism. THAT is what YOU have never seriously challenged. You have never, and never will, provide any serious challenge to laissez faire capitalism, that justifies the very existence of socialist activity like central banking.

    No, you START and STAY within the socialist framework. In other words, you purposefully deny and ignore what actually refutes your worldview.

    I’ve known this for years.

    But that’s the sine qua non of any criticism. Otherwise, I simply don’t care. Manipulation? Who are the victims? And did this occur under Bretton Woods?

    Ah yes, the “well it is not as bad as” gobbledygook.

    If Trump starts rounding illegal immigrants from Mexico into trucks and dropping them off at the Mexican border, will you accept the counter “Oh come on, it is not as bad as what FDR did to the Japanese during the 1940s!” or “B-b-but it is not as bad as what Hitler did to Polish Jews during the 1940s!”

    See, whenever your idea is terrible, all you have is “At least it is better than…”. In other words, the only reason you have any defense at all, is because of what truly horrible people have done in the past. In other words, your entire worldview depends on the existence of tyrants and dictators.

  15. Gravatar of LC LC
    22. July 2016 at 21:06

    Scott:

    The 2 critiques in Noah Smith’s blog really are not critiques against NGDP futures market at all. A lot of people have already responded (rightly) that lack of trading (critique A) doesn’t mean NGDP futures market failed. It means Fed is keeping NGDP on target and no one is betting against it.

    Similarly, critique B doesn’t make much sense either. First, a rich jerk today can make a lot of money manipulating many markets (case in point Martin Shkreli, or any number of hedge fund guys). So going by that logic, all these markets should be shut down? Second, a rich jerk today can manipulate all the asset markets with impunity despite having no skin in the game. Case in point, Jeff Lacker, president of Federal Reserve bank of Richmond. Every time some economic indicator picks up, he goes to media and says economy is strong and monetary policy will be tightened. Markets tank, short sellers win big, until the next economic indictor comes in weak. Then he is silent, and market goes up and some long hedge fund wins big. At least with NGDP futures market, he will shut his mouth and cause less distortion in monetary policy and markets. (OK, calling him jerk maybe too harsh, but you get the point.) Third, he seems to imply that NGDP futures swings will bring noise into monetary policy. Duh. What does he think of all the Fed talking heads talking up the strength of economy and talk down NGDP futures and causing volatility in NGDP expectations? With NGDP futures market, at least these guys will be silent, so there will be less noise in monetary policy.

  16. Gravatar of Lorenzo from Oz Lorenzo from Oz
    22. July 2016 at 23:35

    Excellent explanatory post, thank you.

  17. Gravatar of Gary Anderson Gary Anderson
    23. July 2016 at 04:48

    LC, nobody is going to stop the Fed from manipulation. That is what the Fed does. It rigs risk all the time. Bank of America complained about it not to long ago. You won’t fit the Fed into a straight jacket. It isn’t a public institution. It is as private as can be, and the court case Lewis versus the US government 1982, proved it. The Fed lives to protect the banks, and it is an international organization and limits the sovereignty of the nations often.

    Did you guys notice that yields went down when QE ended? Everyone said that would not happen. But those folks, many of them, at least, were lying to get weak hands to give up their treasury bonds, the new gold of collateral for derivatives trades. Massive demand is proven also by oversubscription to all the bond auctions.

    Anyway, as the link to my name proves, the Fed knew there was massive demand for bonds, which is why QE had to end. The Fed knew bond yields would not spike even though all the pundits said otherwise. The reason is supply and demand for collateral, period.

  18. Gravatar of ssumner ssumner
    23. July 2016 at 05:08

    Robert, There is “something else” it’s called the wisdom of crowds.

    Thanks Patrick and Lorenzo.

    I wonder how many people read MF’s bizarrely shaped post.

    LC, Yes, and again the same sort of manipulation could have occurred under Bretton Woods, but I don’t hear people complaining about it in that context.

  19. Gravatar of bill bill
    23. July 2016 at 05:51

    Balancing the longs and shorts.
    I like that.
    Just like a bookie. Not trying to pick winners, just make the vig.
    [Smiley face]

  20. Gravatar of Gary Anderson Gary Anderson
    23. July 2016 at 07:38

    NGDP targeting is dead. Say you have 1 percent growth and need 4 percent inflation to meet the 5 percent target. If inflation got out of hand above 4 percent, the Fed would destroy the world’s collateral, bonds, by needing to raise rates or at the very least invert the yield curve like a pretzel.

    All that is left for the monetarists is base money in the hands of the people.

  21. Gravatar of Gary Anderson Gary Anderson
    23. July 2016 at 10:58

    Even David Beckworth appears to understand most if not all of what I am telling you Scott. He just said this:

    “This downward march of interest rates has occurred prior to and after QE programs and is therefore not the result of central bank tinkering. Rather, it is the result of far bigger global market forces. One interpretation of this movement (based on the expectation theory of interest rates) is that the market expects future short-term interest rates to be increasingly lower. As Tim Duy notes, the Fed is fighting against this force and is unlikely to win. Put differently, interest rates are being suppressed by market forces despite the Fed’s best efforts. The Fed will not be able to raise interest rates this year and maybe even next year.” See his post dated July 20, 2016.

    Come on Scott, even Beckworth almost has it. And while I am at it, I understand NGDP Targeting. I understand how inflation was targeted missing the drop in nominal GDP in 2007-2008. I understand that NGDP targeting will not be permitted by the Fed since this massive demand for bonds which is a market force that cannot be stopped, and raising rates even a little unsettles that force of demand for bonds as collateral. I hope David would see that collateral is at the heart of the issue.

    You don’t have to be an economist to know that NGDP targeting would have helped in 2008 but will not be permitted in this low rate environment, in this clearinghouse environment where systemic risk is now held by the clearinghouses and the only way they can fail is if there are not enough bonds to use as collateral.

  22. Gravatar of ssumner ssumner
    27. July 2016 at 08:06

    Gary, You are like the student who hasn’t studied for the test, doesn’t understand the question, and tells me everything he does understand in the hopes of getting a few points.

  23. Gravatar of M Tubbs M Tubbs
    27. July 2016 at 13:37

    Scott,

    I’m fairly new to your blog and definitely new to posting. My question is related to NGDP as the optimal target.

    1) Would it not be optimal/possible to target GDP instead of NGDP? Could you not have the same market for GDP futures and wouldn’t this incorporate inflation targeting in these models?

    2) What theoretical models do you use to run simulations on these ideas ((if any) <– this may sound condescending I assure you it's not).

    3) You have had contact with William Barnett in the past. I'm very sympathetic to, just not well trained in, monetarists ideas. I currently have some NK DSGE codes with a Taylor Rule in place. What do you think of implementing a forward looking Taylor-esque rule that targets both a Divisia money supply and NGDP targeting?

    Thanks for the great blog!

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