The Problem with the Fed's Targeting

The monetary policy of targeting nominal gross domestic product (NGDP) is starting to come into vogue in mainstream economic and political circles.  Christina Romer, the architect behind President Obama's first stimulus failure and professor of economics at the ideology vacuum known as the University of California, Berkley, recently penned a New York Times editorial on the issue: Mr. Bernanke needs to steal a page from the Volcker playbook. To forcefully tackle the unemployment problem, he needs to set a new policy framework - in this case, to begin targeting the path of nominal gross domestic product. Nominal G.D.P. is just a technical term for the dollar value of everything we produce. It is total output (real G.D.P.) times the current prices we pay. Adopting this target would mean that the Fed is making a commitment to keep nominal G.D.P. on a sensible path. More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2...(Read Full Article)

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