Lars Christensen has a great post regarding the consideration of Stanley Fischer, former head of the Israeli Central Bank that I highly recommend reading.
Here’s what Lars has to say:
Good news! Stanley Fischer certainly is qualified for the job. He knows about monetary theory and policy. And even better he used to have some sympathy for nominal income targeting. Just take a look at this quote from his 1995 American Economic Review article “Central Bank Independence Revisited” (I stole this from Evan Soltas):
“In the short run, monetary policy affects both output and inflation, and monetary policy is conducted in the short run–albeit with long-run targets and consequences in mind. Nominal- income-targeting provides an automatic answer to the question of how to combine real income and inflation targets, namely, they should be traded off one-for-one…Because a supply shock leads to higher prices and lower output, monetary policy would tend to tighten less in response to an adverse supply shock under nominal-income-targeting than it would under inflation-targeting. Thus nominal-income-targeting tends to implya (sic) better automatic response of monetary policy to supply shocks…I judge that inflation-targeting is preferable to nominal-income-targeting, provided the target is adjusted for supply shocks.”
The quoted speech given by Mr. Fischer is pretty good, except for the last sentence because I don’t really know what “adjusting” an inflation target for supply shocks means. The speech is even better if it means more of an Alan Greenspan pre-2000 approach to inflation targeting that had more of an implicit NGDP target than not. It still passes the dajeeps smell test even if that sentence only means that headline inflation measures explainable by supply shocks are ignored.
But I like Stanley Fischer for an entirely different reason than just this which, to me, is icing on the cake. I saw him in a video of a recent panel discussion (I’ll have to dig up the link if I can remember where I saw it) where he was asked a question about what the central bank should do when the government behaves irresponsibly. His answer struck me because it was just a few days after I had written this post about subversive former Fed governor Kevin Warsh insisting that the central bank should not make up for government irresponsibility. Mr. Fischer’s response was something like, “Well, we have these sets of tools and we have a certain place. We are unelected bureaucrats…” The disappointment on the face of the host that he wasn’t able to drag Mr. Fischer down the rat hole of subversion was priceless. And Mr. Fischer gained a fan for life with his response. I need to find that video again so I can provide an exact quote, because it is quite amazing.
Here’s the link to the video. It was the Wall Street Journal CEO Council – Global Economy Outlook that was aired on C-SPAN in November. The exchange I referred to in this post starts at about 14:33.