Deutsche Bank says yes:

The Fed’s dual mandate of maximum employment and price stability implies substantial oversight of the private economy. We develop a proxy for nominal private GDP growth, perhaps the broadest measure of private sector activity, and decompose this proxy into two segments, one that is explicitly within the scope of the dual mandate and one that is not. Weak nominal private growth in the present cycle has been almost entirely due to the latter, in particular the abysmal trend in productivity. We conclude that while a narrow reading of the Fed’s dual mandate might suggest that it is far behind the curve in terms of rate hikes, the Fed has favored a very cautious approach because it has implicitly assumed broad responsibility for nominal output growth. As the productivity slowdown is unlikely to get resolved in the near term, we expect the Fed to remain on hold through much of this year, and possibly into next year.

I highly recommend Gregory’s Clark’s review of Robert Gordon’s book on the growth slowdown.  He does a nice job of explaining why productivity growth is going to remain low for the foreseeable future:

The core of Gordon’s pessimism about future technological advance is that the modern US economy is now heavily based around services, accounting for 80 percent of output. Manufacturing, traditionally a sector with higher efficiency advance, has shrunk to 12 percent of the economy. . . .

A surprising share of modern jobs are the timeless ones of the pre-industrial era— cooking, serving food, cleaning, gardening, selling, monitoring, guarding, imprisoning, personal service, guiding vehicles, carrying packages. Food production and serving, for example, now employs significantly more people (9.1 percent) than do production jobs (6.6 percent). One in ten workers is employed in sales. The information technology revolution to date has left these jobs largely untransformed. Workers in these types of jobs in Europe in 1300, if transplanted to modern America, would need little retraining.

Even outside services, we can find jobs with no gain in productivity since the Industrial Revolution. Builders’ price books in eighteenth century London show the rate at which bricklayers laid bricks in house construction. In 1787 this was 75 bricks laid per hour. For modern England the rates are lower, 225 years later, at around 50–70 per hour.

Combine slow productivity growth with at most 2% inflation and a working age population that’s growing very slowly, and you are left with 3% NGDP growth and very low interest rates for as far as the eye can see.  Get used to it.

HT:  Federico

It certainly looks that way to me.  Last year, the BOJ came under increasing pressure from officials in the Abe government, who advocated lowering the inflation target to 1%.  At the time it looked like the BOJ was ignoring this pressure, but now the signs of a switch look unmistakeable.  Japanese NGDP expectations are almost certainly declining, as the yen soars in value and Japanese stocks plunge. Negative interest rates are another bearish sign.  FT Alphaville has an interesting report:

The upcoming 27-28 April BoJ meeting is likely to push the authorities into finally admitting a plan to consolidate the JGB holdings into perpetual bonds alongside a formal move away from inflation targeting to nominal GDP targeting. There is a growing realization that there are effective limits to how much more JGBs can be acquired…

Although there is certainly room for deposit rates to be dropped further into negative territory and possibly the BoJ acquiring local government debt, there is growing realization that at some point the BoJ is likely to announce a ‘tapering of JGBs’ towards the end of 2016 or early 2017…

I’m skeptical that they will switch to NGDP targeting, or at least NGDP level targeting, which is what they really need. Perhaps Kuroda will pull another rabbit out of his hat, but I don’t think it’s likely.  If it was likely, the yen never would have appreciated so strongly.  Given that the current inflation target is not credible, it would be rather pointless to switch to NGDP growth rate targeting, which would be equally lacking in credibility.

What should Japan do?  I suppose they should do whatever they want to do.  It doesn’t make much sense to target inflation at 2% if you don’t want to target inflation at 2%.

The more interesting question is what should they want to do?  I’d say NGDPLT. But they seem to have other ideas.

Either way, we should have an answer by the end of the month.

HT:  Tyler Cowen

PS.  Here’s the dollar (in yen terms):

And here’s the Nikkei:

In the early years of the Great Recession, I pointed to Australia as an example of enlightened monetary policy.  It hadn’t had a recession in 20 years. NGDP grew at a 6.5% annual rate between 1996 and 2006, and then continued growing at a 6.5% annual rate from 2006 to 2012.  Since then Australian NGDP growth has slowed substantially, for a variety of reasons:

1.  Population growth has slowed to 1.2%, from a peak of 2.2% in 2008. (It’s actually per capita NGDP that matters)

2.  Commodity prices have plunged, leading to a fall in the GDP deflator.  (Total labor compensation per capita is probably superior to NGDP in commodity-intensive economies.)

Back in 2009-10, my critics said that Australia was just a lucky country, benefiting from booming commodity exports to China.  OK, let’s test that theory.  How has Australia done in 2015?  Recall that in late 2014 and throughout 2015, global commodity markets plunged due to falling Chinese demand for Australia’s key exports (coal and iron ore), pushing Canada into a sharp slowdown and places like Venezuela into deep depression. Here’s a news report from December 2015:

Australia’s unemployment rate has fallen to 5.8%, the lowest level in 20 months, following the strongest two-month period of jobs growth in 28 years.

Now admittedly the two month data is very noisy, but over the past 12 months the Australian unemployment rate has fallen from 6.4% to 6.0%.  So much for the theory that Australia was bailed out by China in 2008-09.  What’s the new excuse going to be?  If it wasn’t commodities, why did Australia avoid recession in 2008-09?

If you don’t like unemployment data, JP Koning sent me a nice graph comparing Australia with its most similar rival—Canada:

Aussie RGDP is up 3% over the past 12 months, whereas Canada is up just 0.5%. And keep in mind that Canada is one of the best run developed economies, with one of the best run central banks—and the Aussies still blew them away.  Also recall that Canada’s economy has a larger manufacturing sector than Australia, and is thus less dependent on commodities.

Recall this anecdote:

Historical rumor has it that a subordinate once asked Napoleon, “What kind of generals do you want?” “I want lucky ones,” he replied.

I say, “Give me a ‘lucky country’s’ central bankers.”

PS.  Austrian readers may be interested in knowing that Australia’s monetary policy was much more expansionary than Fed policy during the years leading up to the Great Recession.  When will Australia pay the price for all that misallocation?  And Australia’s housing bubble was even bigger, but still hasn’t burst. When will the inevitable collapse occur?

And for all you protectionists out there, Australia’s run massive current account deficits for many decades. When I taught there in 1991, the Very Serious People told me that Australia’s day of reckoning was approaching. That was 25 years ago. So just how long can Australia keep selling condos to Chinese investors in exchange for manufactured goods?  And why do we call that sort of trade a “deficit”?  And just how many empty beaches do they have, where more condos can be built?

PS.  I notice there’s been a lot of recent discussion of Sweden’s 4.5% RGDP growth over the past year.  I do understand that GDP growth is more volatile for smaller countries, but that seems surprisingly high.  Might it be related to the inflow of 163,000 refugees (1.7% of Sweden’s population)?  In other words, a positive supply shock?

Stephen Kirchner sent me an excellent article from The Telegraph, discussing monetary policy in Britain. It linked to some recent letters, which are triggered whenever the BoE misses it’s inflation target by a wide margin:

Mark Carney

Governor

The Bank of England

Threadneedle Street

London

EC2R 8AH

Dear Chancellor:

In November I wrote a fourth letter to you when CPI inflation remained more than one percentage point below the 2% target. Three months later, as expected, that is still the case: . . .

There’s much more. And here’s Osborne’s reply:

The Rt Hon George Osborne

Chancellor of the Exchequer

HM Treasury 1

Horse Guards Road

London

SW1A2HQ

Dear Mark,

CPI Inflation

Thank you for your letter of 4 February on behalf of the Monetary Policy Committee (MPC) regarding December’s CPI inflation figure, written under the terms of the MPC remit. As expected at the time of your previous open letter in November 2015, inflation has remained around zero in the past few months, triggering a fifth open letter for inflation falling more than 1 percentage point below target. . . .

The Government’s commitment to the current regime of flexible inflation targeting, with an operational target of 2% CPI inflation, remains absolute. The target is symmetric: deviations below the target are treated the same way as deviations above the target. Symmetric targets help to ensure that inflation expectations remain anchored and that monetary policy can play its role fully. . . .

The MPC have revised down their forecast for real GDP growth and CPI inflation in the short term, implying weaker nominal growth. This, combined with threats from the international environment, mean we face the risk of a weaker outlook for nominal GDP. If realised this could present challenges for tax receipts in the future, and reinforces the importance of delivering our plan to achieve a surplus on the public finances by the end of the Parliament.  (emphasis added)

The article that linked to these letters is by Allister Heath, and it’s well worth reading. Here are a few highlights:

At the start of the year, investors expected the first interest rate hike to take place this October; the financial turmoil had pushed this back to March 2018 by the end of this week, helping to explain the pound’s weakness. After Thursday’s inflation report, the markets now expect the first rate hike to take place in August 2018. It’s an astonishingly quick shift – the fastest and greatest since the height of the eurozone crisis – which few have fully digested yet. . . .

The first sentence in the Inflation Report repeats, like a tired and utterly implausible mantra, that “the Bank of England’s Monetary Policy Committee sets monetary policy to meet the 2pc inflation target and in a way that helps to sustain growth and employment”. Who in the City and the financial markets really thinks that this is what this is about anymore? It may be that the MPC actually still believes it is doing this. It is certainly going through all the motions, producing all of the usual fan charts, even though their predictive ability has turned out to be embarrassingly limited. . . .

So here are a few suggestions. First, the Governor and MPC members should cease to give any sort of guidance about the path of interest rates. So far, all such interventions have merely injected noise into the system and made markets less, rather than more, efficient at processing information. Second, if the Chancellor wants the Bank to target a growth rate for nominal GDP then he should say so. He should scrap the intellectually bankrupt CPI target and replace it by a nominal GDP growth rate. Third, the Bank should be more open about the extreme difficulty of deciphering the economy. There would be no shame in admitting, for once, that nobody really understands what is going on.

At some point economic policymakers will admit the obvious—it’s all about NGDP. Inflation targeting was a mistake. It’s really just a matter of time.

PS.  Nobody does street addresses better than the British.  And I’m going to Britain this weekend.

Update.  Marcus Nunes directed me to an excellent James Alexander post, which discusses the sharp fall in British NGDP growth (down to 1%.)

Back in 2009, Bill Woolsey suggested that central banks target NGDP growth at 3%. Over the previous few decades, NGDP growth had averaged 5% in the US and closer to zero in Japan (at least since 1993.)  There was no reason to think that Woolsey’s suggestion would be taken seriously.  But now Woolsey may get his way.

The Economist reports that NGDP in Japan has risen by 3.1% over the past year.  What makes this especially impressive is that the growth rate of the working age population in Japan suddenly plunged sharply right as Abe was elected.  I.e., he faced “headwinds”. If Abe had continued the monetary policy regime of the previous few decades, NGDP growth would have fallen to negative 1%.  Matt Yglesias has a great post on Japan–pay particular attention to the working age population graph (falling fast), and the labor force participation rate graph (rising fast).

Meanwhile in the US, trend NGDP growth is falling close to 3%.  The Hypermind market predicts 3.2%, but that’s during an expansion year with falling unemployment. When the dust settles, I expect Europe to also average about 3%, or perhaps a bit lower.  And I think it’s likely that Japan will slip back below 3%.  Australia and Canada will be a bit above 3%.  These are the sorts of trend growth rates we saw under the gold standard, but in those days it was all real GDP growth. Now it’s mostly inflation.

So three percent is the new normal for NGDP growth, and also for 30-year bond yields in the US.  You might say, “5% is so 20th century.”

PS.  Of course that’s the developed world.  In the India/Indonesia/China triangle, where most people live, 6% real GDP growth is the new normal, while NGDP growth depends on inflation.

PPS.  Good to see the Peronists lose in Argentina—one down, two to go (i.e. Brazil and Venezuela.)

PPPS. I wrote this before the Venezuelan elections; it seems the socialists are on the way out there as well. As Vox recently pointed out, a country with Saudi-type oil reserves can’t provide its citizens with toilet paper.  Poverty levels are skyrocketing.  I hope the Brazilians don’t impeach their President; change should occur through elections.  Still it’s good to see Latin America moving away from the views of people like Jeremy Corbyn.