Diane Swonk endorses NGDP targeting

David Levey sent me this link to an article where Diane Swonk endorses NGDP targeting:

The Fed also discussed nominal GDP targeting, which I prefer over Evans’s model. It just seems much more intuitive for markets to digest that the Fed is working to recoup losses endured during the recession, rather than raising the actual target on inflation. The Fed is struggling with a liquidity trap; there is a core consensus forming that the Fed must reassure the public and financial markets that it is committed to reflating the economy. The goal is to get consumers and investors to move out of the perceived safety of the Treasury market and make riskier, more productive investments in our future.

She is a talented Fed watcher, as illustrated by her perceptive comments in this TV clip from right before QE2.

PS.  Marcus Nunes also has a post.



7 Responses to “Diane Swonk endorses NGDP targeting”

  1. Gravatar of Becky Hargrove Becky Hargrove
    22. November 2011 at 18:30

    In the TV clip: interesting that she thought too much transparency wasn’t always a good thing.

  2. Gravatar of marcus nunes marcus nunes
    22. November 2011 at 18:46

    @ Becky
    Was Greenspan transparent? Was Volcker? Maybe it is that if you strive to be “transparent” (a PC term in my view), you´re less likely to be successful!

  3. Gravatar of Doc Merlin Doc Merlin
    23. November 2011 at 03:19

    As soon as we have a boom and the bank needs to tighten to keep the growth path steady… we will see the left freaking out and condemning NGDP targeting.

  4. Gravatar of Becky Hargrove Becky Hargrove
    23. November 2011 at 08:24

    That’s right, the power of the chameleon. Now you’re going to make me defend ‘poor’ Christy Romer!

  5. Gravatar of John Bennett John Bennett
    23. November 2011 at 17:19

    Financial sector reform was only a quick cosmetic job. Banks and other financial institutions are full of junk investments they can’t dump, making the economy fragile and putting money in anything that isn’t government insured very risky. Until the banks are cleaned up and the shadow banks regulated and purged, investing is too risky. How do we get round that? Targeting NGDP by itself won’t be sufficient.

  6. Gravatar of ssumner ssumner
    23. November 2011 at 20:16

    Becky, Yeah, but she was referring to all the dirty laundry, the arguments. I think they need more transparency about policy.

    Doc Merlin, That’s very possible, although the left was OK with tightening during the Great Moderation.

    John, I agree the banking system has lots of problems, but you underestimate how much some additional NGDP would improve asset values and balance sheets.

    Everyone, I’ll get to older comments tomorrow.

  7. Gravatar of Becky Hargrove Becky Hargrove
    24. November 2011 at 03:11

    John Bennett, re: “investing is too risky”
    That’s why I’d like to see more mobile and flexible forms of ownership utilized, i.e. existing markets for those who no longer have adequate credit, but could utilize pay as you go systems for modular building components. Such systems could be assembled and reassembled on building grids which might be rented from the municipality.

Leave a Reply