David Eagle on NGDP targeting

Lars Christensen has had a number of posts discussing David Eagle’s work on NGDP targeting.  Eagle teaches at Eastern Washington University, and had some of the same problems I had in getting journals to accept unconventional ideas:

In the past, I have been frustrated with the publication barriers put up by economic journals, which have prevented me from getting my ideas exposed. With this note, I am bypassing those journals (although Dale [Domian] and I will still try to publish in those journals). I hope that someone in Cyberland will find our message and investigate and try to contact us. Dale and I are currently writing more papers to help communicate these very important ideas. However, our previous papers were written at a very high theoretical level; we are now trying to bring these papers down to earth, making them more readable to more people. When we get those papers in more polished forms, I will try to make them available on this web site.”

He has a new paper where he shows that the recoveries from the 1991 and 2001 recessions were quite slow because the Fed was following growth rate targeting rather than level targeting:

A debate has recently been stirring concerning the potential for central banks replacing inflation targeting with nominal GDP targeting (See for example Sumner (2011a).  The current paper fills a gap in this debate by empirically determining the relationship between NGAP and unemployment.  A major finding of this research is that the reason for prolonged high unemployment following a recession is NGDP base drift.  McCallum (2011) also favors a target involving nominal GDP, but he actually prefers targeting the growth rate in nominal GDP rather than the level of nominal GDP.  Since NGDP base drift would be as much a problem with nominal growth rate targeting as it is with inflation targeting, this finding suggests central banks should avoid targeting regimes like IT and ΔNT that lead to substantial NGDP base drift.

David Eagle has done a lot of work in this area over the years, and plans a set of posts over at Lars Christensen’s blog.  Here’s his first and his second.

Lars also has a guest post from Integral, who discusses a paper by Evan Koenig of the Dallas Fed.  Here’s an excerpt:

If there are complete markets in contingent claims, so that agents can insure themselves against fluctuations in aggregate output and the price level, then “money is a veil” as far as the allocation of risk is concerned: It doesn’t matter whether the monetary authority allows random variation in the price level or nominal value of output. If such insurance is not available, monetary policy will affect the allocation of risk. When debt obligations are fixed in nominal terms, a pricelevel target eliminates one source of risk (price-level shocks), but shifts the other risk (real output shocks) disproportionately onto debtors. A more balanced risk allocation is achieved by allowing the price level to move opposite to real output. An example is presented in which the risk allocation achieved by a nominal-income target reproduces exactly the allocation observed with complete
capital markets. Empirically, measures of financial stress are much more strongly related to nominal-GDP surprises than to inflation surprises. These theoretical and empirical results call into question the debt-deflation argument for a price-level or inflation target.

We are slowly gaining ground within the evil empire Federal Reserve System.

Tim Congdon is an important British monetarist, and was one of the first economists to notice that money was actually far too tight in 2008.  Here I review his new book in The American Conservative:

The eighth essay in Money in a Free Society contains a fascinating look at how Milton Friedman’s views evolved over time. In 1948 he still accepted the standard Keynesian dogma that the budget deficit played a major role in determining aggregate demand and output. By 1996 he was arguing that fiscal stimulus was almost completely ineffectual, as monetary policy drives growth in nominal expenditures. Friedman suggested that this change reflected “empirical evidence” over the intervening half century.

Paul Krugman and Brad DeLong like to bash the modern Chicago School for ignoring (or forgetting) the wisdom of Milton Friedman, and with some justification.  But at least with regard to fiscal stimulus it seems Milton Friedman himself had adopted the “Treasury View” by 1996.



8 Responses to “David Eagle on NGDP targeting”

  1. Gravatar of Kevin Donoghue Kevin Donoghue
    9. January 2012 at 14:07

    I don’t think Friedman would thank you for portraying him as a convert to the “Treasury View” — even with scare-quotes.

  2. Gravatar of Lars Christensen Lars Christensen
    9. January 2012 at 14:21

    Scott, I am happy to see that you are helping giving exposure to David Eagle’s work. I fundamentally think that David will be playing an important role in sharping the deeper theoretical foundation for Market Monetarism in the future.

  3. Gravatar of Rod Nicholls Rod Nicholls
    9. January 2012 at 16:27


    I had the pleasure of being a student of Dr. Eagle’s back in the early 1990’s. He always had some pretty amazing, data driven, research based, ideas and theories on markets and economics. His analysis of the 1987 Stock Market Crash is quite interesting and definitely out of the box. It will be interesting to see if you can introduce and get traction for this “third way” of viewing a potential solution to helping speed our economic recovery. It sounds promising; it is too bad that the people who dominate the debate, like Krugman et. al. appear to be more about feeding their egos and personal power and position; rather than finding an actual solution. They strike me as being a bit like the flat earth society from the late middle ages.



  4. Gravatar of ssumner ssumner
    9. January 2012 at 17:50

    Kevin, I used to quotes to suggest how Krugman/DeLong would view his comment. There are of course many reasons why the multiplier might be zero–some good and some bad.

    Lars, Yes, I’m very impressed by his work.

    Rod, Thanks for that information about David Eagle. I’m not at all surprised that he is a good teacher. You can tell by his articles that he has a real passion for economics, unlike the all-too-common cyclical researchers who simply churn out what they think the econ journal editors want to read.

  5. Gravatar of Integral Integral
    9. January 2012 at 18:26


    Thanks for highlighting my post. NGDP targeting is making slow inroads at the Fed; and Koenig’s paper nicely highlights the discussion we’ve had as to whether D/NGDP or D/P is the correct variable for measuring sustainable debt loads, and indeed comes to the same conclusion as the MM crowd.

  6. Gravatar of Lorenzo from Oz Lorenzo from Oz
    9. January 2012 at 19:45

    Your point in your review of Congdon about Keynes being more nuanced than his disciples is a perennial of intellectual history. Etienne Gilson pointed out the basic pattern — the disciples take the master’s conclusions (or what they think those conclusions are) as premises. Marx proclaimed that he was not a Marxist; Kuhn that he was not a Kuhnian: it is not really surprising that Keynes was not a Keynesian in the same way that Freud was not a Freudian.

  7. Gravatar of Lorenzo from Oz Lorenzo from Oz
    9. January 2012 at 19:48

    For some reason the link citing Gilson disappeared, it is here.

  8. Gravatar of ssumner ssumner
    10. January 2012 at 07:12

    Integral, That’s good to hear.

    Lorenzo, Maybe someday people will say “Sumner wasn’t really a market monetarist.” At least I hope so. 🙂

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