Archive for the Category NGDP futures targeting


Recent articles

I have three new pieces that just came out. At The Hill, I have an article that discusses wages:

On Friday, the government announced average hourly wage growth for October, which came in at an annual rate of 2.8 percent.

The case was similar in September, and the media reported that Fed officials may react by tightening monetary policy. Not surprisingly, this puzzles lots of people: Shouldn’t we welcome higher wages, especially after decades of sub-par wage growth?

The short answer is that we should welcome higher “real” wages, but the Fed does have reason to be concerned about higher “nominal” wages. . . .

It’s true that printing lots of money can lead to higher nominal wages. However, as workers in places like Mexico and Argentina have discovered, if productivity is stagnant, then large nominal pay raises do not translate into higher real wages.

The recent 2.8 percent average hourly wage growth doesn’t pose a large threat, but the Fed has good reasons to be wary of a steep upsurge in nominal wage growth.

At Mercatus, I have a new policy report discussing the Hypermind NGDP prediction market:

It is difficult to understand why it took so long for an NGDP prediction market to be created, as NGDP is probably the best single indicator of whether monetary policy is too expansionary or too contractionary. Given that the Fed has already expressed an interest in TIPS spreads, it likely would be equally interested in market forecasts of NGDP growth.

Had this market been in existence during 2008–2009, it might well have provided valuable signals to the Fed. After all, even Ben Bernanke admits that the Fed erred in September 2008, when it refused to cut its target interest rate from 2 percent right after Lehman failed. At the time, TIPS market expectations of inflation were much lower than Fed forecasts. But NGDP growth expectations are even more informative about the state of the economy than inflation expectations.

In the end, the Hypermind NGDP prediction market is a sort of demonstration project. One would hope that the Fed will set up its own (better-funded) NGDP futures market, which could help it to make more informed policy decisions. The cost would be trivial relative to the potential gains from more effective monetary policy.

At The Bridge, I have a piece pointing out that monetary policy is becoming increasingly accommodative:

Thus whether you judge policy solely by considering inflation, or both inflation and employment, you reach the same conclusion. Policy was too restrictive to hit both the Fed’s inflation target and its employment target during 2009-16, and policy is now relatively accommodative, with inflation above the two percent target and the unemployment rate below the 4.0 percent to 4.6 percent range that the Fed views as “full employment”.

The fact that monetary policy is increasingly accommodative does not necessarily imply it is too accommodative. The Fed needs to look beyond the current data and forecast the impact of its policy on the future condition of the economy. Inflation has recently been pushed up by a sharp rise in oil prices, and it’s possible that it may fall back below two percent during 2019. Even so, the balance of risks has recently shifted, and the long period of excessively restrictive monetary policy is over.


Seven hundred $100 bills are lying on the sidewalk. Pick them up!!

I have wonderful news for everyone.  The prize money for two Hypermind NGDP markets has soared to $70,000, which includes $35,000 in prize money for the 2017:Q1 to 2018:Q1 contract (currently trading at about 39, or 3.9% NGDP growth), and another $35,000 for the 2018:Q1 to 2019:Q1 contract.

Update:  This announcement triggered a lot of interest in the contract. Hypermind sent me a better link to the two markets.

Remember that this is free money.  You do not have to invest any of your own money to participate.  You can win money, but you cannot lose.  Our hope is that this prize money will lead to more trading in the NGDP markets, more liquidity.

Once again, NGDP growth expectations are the single most important market price, the single most important measure of the performance of the macroeconomy.  It’s a scandal that the economics profession has ignored this issue, but the Mercatus Center and Hypermind have cooperated so that we will have a real time measure of the public’s NGDP growth expectations.  (Here is the Mercatus announcement.)

Participating in this market can result in free money, thousands of dollars worth of free money for the more talented/lucky (pick one) participants. But the more important reason for participating is that this will tend to shine a spotlight on expected growth in aggregate demand.  Progressives should want that to happen.

And there’s something for conservatives too.  I hope that the financial press will eventually start reporting current NGDP futures prices.  This will gradually put more pressure on the Fed to pay attention to market forecasts, and move from a discretionary policy approach to a more rules-based approach.  Thus NGDP targeting has something for both progressives and conservatives, which is why it’s an increasingly popular idea among economists on both the left and the right.

PS.  I’m also a believer in the “watched pot never boils” theory, so I believe this market makes it less likely that a recession will occur before 2019. (Making this the longest expansion ever.) Recessions only occur when NGDP expectations fall sharply, and I believe the Fed will not want to see NGDP expectations fall sharply. Please file away this prediction, and remind me of it if I am wrong.

PPS.  David Beckworth has a very interesting podcast with Larry Summers.

In this Econlog post I comment.



NBA GMs and Fed Governors

Here is Nate Silver, discussing the growing accuracy of NBA mock drafts:

Mock drafts — and rumors/reporting about who would go where — were shockingly accurate this year. There aren’t a lot of dumb teams in the NBA anymore, and it’s getting harder to find picks that come out of nowhere.

I suppose one could think of mock drafts as sort of like “the market” and NBA general managers as sort of like the Fed.  Are the mock drafts getting more accurate because mock drafters are getting smarter, or because (As Silver hints) NBA GMs are getting smarter?  Or maybe GMs are realizing the market is smarter than they are.

My hope is that the market will become increasingly accurate in predicting monetary policy, because monetary policymakers will increasing take their lead from the market.

Gabe Newell contributes to Hypermind

I’d like to thank Gabe Newell (President of Valve Software) for very generously agreeing to directly contribute $10,000 to the Hypermind NGDP prediction market. You may recall that Mr. Newell made a similar contribution a few years ago, in our previous effort.  Note that some of the recently donated money is still working its way through the bureaucracy, but rest assured it will get there.  I hope to be able to announce a much larger prize total in the near future.  The goal is to boost trading volume.

In this previous post, I explained how you can also assist the prediction market project by contributing to the Mercatus Center.  I believe that this sort of contribution has tax advantages due to the non-profit status of Mercatus.  However I recently learned that Mercatus has a policy where researchers don’t publicly thank donors, as research and fundraising are kept separate.  Sorry about that misunderstanding.  That does not apply to direct donations to Hypermind, but AFAIK those are not tax deductible.

PS.  As I get older, things just seem to get more complicated.  But I’m working hard to simplify my life.  Last month I owned two rental properties. Now I have one.  Next month I’ll have zero.  Never become a landlord.

A major donation to boost the Hypermind NGDP market

I am very pleased to announce that Kenneth and Jennifer Duda have agreed to donate $50,000 to the Mercatus Center to help support the Hypermind NGDP prediction market project.  Ken Duda is the CTO of Arista Networks, a major Silicon Valley tech company.  Back in 2014, the Dudas supported the original NGDP prediction market, and more importantly were very generous donors to the Mercatus Center, which allowed for the creation of the Program on Monetary Policy. This is the program that supports the work that David Beckworth and I are engaged in.

As far as I know, Ken and Jennifer are the world’s leading philanthropists in promoting research on monetary policy reform–an area where technical improvements could be worth trillions of dollars (just watch how global stocks react to bad monetary policy decisions), as well as millions of jobs.

The earlier post initially left out some necessary information as to where to donate–apologies for that.  We have added options such as Bitcoin and PayPal, which were requested in the comment section.

I am very excited about this market.  The Dudas’ donation will eventually result in a big jump in the prize level, which should motivate more trading.  (If not, the few people who do trade will be very lucky.)  I anticipate more donations are coming in as well—I’ll keep you posted.  I’ll provide more specifics on prize money when the donation process is completed.

Relatively soon, there should be lots more $100 bills lying on Hypermind’s sidewalk. I don’t think I need to tell you guys what to do.  Pick them up!

PS.  I have a new Econlog post that responds to questions raised in the comment section of the previous request for donations post.