The blogosphere is buzzing today with news of incoming Bank of England Governor Mark Carney’s discussion of NGDP level targeting as an alternative policy at the zero bound.
Here’s Mr. Carney:
To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up.
To ‘tie its hands’, a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus.
If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.
This is great news for Market Monetarism and the general public. But in reading it, I got the feeling that I have been very harsh on the Fed, specifically Bernanke, because it announced today that it would keep stimulus going until the threshold of 6.5% unemployment was reached or inflation were to rise above 2.5%. It’s not the kind of commitment I wanted to see, but it is a commitment to monetary stimulus nonetheless.
It is a rather wobbly policy as in being not good to target real variables, and indeed, the Fed can only target one variable at a time. So I don’t really understand what it is targeting or what its reaction function would be if some unexpected event occurred. By the time it would be aware of an issue, whether inflation would decline or unemployment would rise, it would be still arriving late to the tragedy and still positioned to mop up a mess rather than avoid one all together.
But it is a larger step in the right direction that will have to be cleared up at some date in the future, or there will be problems. I don’t know why it would choose such a confused policy and not just move completely away from the dark side. NGDP level targeting is certainly superior to this sort of mish-mash of variables. Even flexible level targeting of inflation would be better because that would force the makeup of undershooting. But ok, something is better than nothing for the time being. It addresses the household welfare issue that has been my driving force for this blog and the reason I have been willing to climb out on a limb and say things I normally would not.
And to my own good news… I am in the final stages of becoming employed once again. I got an offer and they are in the process of completing all of the background checks, etc…I am extremely confident that I will be working again in the next few weeks. My husband and son are elated. I am, however, filled with a bit of anxiety. When I was last working, I was very passionate about what I was doing and that was a major part of my success. I now feel somewhat like an empty slate and not completely positive I can fill it up again with the old things. I wonder if I’ll be sitting in meetings thinking about a Milton Friedman paper I want to read, or the Fry’s Rebellion book, or about Zachary Taylor’s administration. These aren’t things that I can just flip the switch on so easily. But I’ll have to learn some discipline and how to be interested in technology again. I am hoping that once I get there, I’ll find that it is easier to do than it appears to be right now and won’t end up mattering at all.