Monetary targetry: Might Carney make a difference?
Charles A.E. Goodhart, Melanie Baker, Jonathan Ashworth 22 January 2013
The Bank of England’s Governor-elect has argued for a switch to a nominal GDP target. This column points out problems with nominal GDP targets, especially in levels. Among other issues, nominal GDP targeting means that uncertainty surrounding future real growth rates compounds uncertainty on future inflation rates. Thus the switch is likely to raise uncertainty about future inflation and weaken the anchoring of inflation expectations.
The economic recovery from the 2008/9 crisis has been depressingly slow in the UK, as in many other developed countries. Further fiscal expansion is constrained by concerns about the extraordinary (for peace-time) scale of the public sector deficit and rise in the debt/GDP ratio. Hence politicians, and many other commentators, are looking to monetary policy to play an even more aggressive role in getting us out of our present stagnation.
Bank of England, nominal GDP targeting
Central banks can phase in nominal GDP targets without damaging the inflation anchor
Jeffrey Frankel 19 December 2012
The time is right for the world’s central banks to rethink how they conduct monetary policy. This column argues that central banks should follow the lead of Mark Carney, the Bank of England’s new Governor, in considering a move to nominal GDP targeting. If nominal GDP targeting is introduced in two distinct phases, its introduction can deliver the advantage of some stimulus now – when it is needed – while satisfying central bankers’ reluctance to abandon their cherished low inflation target.
The time is right for the world’s central banks to reconsider the framework they use in conducting monetary policy. The US Federal Reserve and the ECB are still grappling with sustained economic weakness, despite years of low interest rates. In Japan, Shinzō Abe, the new prime minister from the Liberal Democratic Party (LDP), was elected on the promise of a new, more expansionary monetary policy (Financial Times 2012). In the UK, Mark Carney, the incoming Governor of the Bank of England, is open to new thinking.
inflation targeting, monetary policy, nominal GDP targeting
The death of inflation targeting
Jeffrey Frankel 19 June 2012
The current economic crisis has called into question the role of monetary policy, particularly inflation targeting and its oversight of asset bubbles and supply side shocks. This column is an obituary to inflation targeting and call for nominal GDP targeting to replace it.
It is with regret that we announce the death of inflation targeting. The monetary regime, known affectionately as “IT” to its friends, evidently passed away in September 2009. That the demise of IT has not been officially announced until now testifies to the esteem in which it was widely held, its usefulness as a figurehead for central banks, and fears that there might be no good candidates to assume its position as preferred anchor for monetary policy.
Macroeconomic policy Monetary policy
inflation targeting, nominal GDP targeting