I’ve constantly complained that there is no word in the English language for nominal shocks, i.e. unexpected increases and decreases in NGDP. (Or even expected changes, for that matter.) In contrast, there are simple words for rising and falling price levels; inflation and deflation. Interestingly, this language failure is mirrored by an analytical failure; when economists discuss Fed policy and nominal shocks they speak in terms of inflation and deflation, not rising and falling NGDP.
A good example occurred in late 2007 and the first half of 2008, when the CPI was rising at nearly 5%, but NGDP was rising by about 3%. Was this a positive nominal shock or a negative nominal shock? Based on NGDP growth, it was negative, as NGDP (or M*V) was rising by far less than the normal 5% rate. But economists who used the faulty inflation indicator (including some top officials at the Fed) concluded it was a positive nominal shock, as inflation was well above the 2% implicit target. Their mistake was in confusing supply and demand shocks. The high inflation in late 2007 and the first half of 2008 was due to a leftward shift in the AS curve, not an increase in AD.
So we need terms for changes in M*V, which is the sort of nominal variable the Fed should be trying to stabilize. I’ve tried to think up some new terms, but everything I came up with was almost laughably silly:
1. Monvelaire (for rising M*V)
2. Monvelump (for falling M*V)
I think you see the problem. Anyway, Matt Yglesias has a better idea, we should simply steal the term ‘inflation’ from the bad guys:
Anyone have any other ideas for terms representing rising and falling NGDP?
PS. I will be traveling quite a bit over the next few weeks, so I won’t do much blogging for a while. I hope to pick up my previous pace (i.e. before getting distracted by the manuscript revision) by mid-May. I have a big backlog of things that I haven’t had time to comment on, as the manuscript has taken up most of my time. I plan to read Amity Shlaes’ book on the Depression while traveling, so I’ll do a review when I have time.