George Selgin on Bernanke and NGDP targeting
Bill Woolsey has comment on Fed governor Ben Bernanke's comment's yesterday regarding NGDP targeting. Here is what Bernanke said: "So the fed's mandate is, of course, a dual mandate. We have a mandate for both employment and for price stability. And we have a framework in place that allows us to communicate and to think about the two sides of that mandate. We talked yesterday about nominal GDP as an indicator, as an information variable, something to add to the list of variables that we think about. And it was a very interesting discussion. However, we think that within the existing framework that we have, which looks at both sides of the mandate, not just some combination of the two, we can communicate whatever we need to communicate about future monetary policy. So we are not contemplating at this time any radical change in framework. We are going to stay within the dual mandate approach that we've been using until this point." George Selgin who is one of the pioneers of NGDP targeting - even though we all know George prefers Free Banking - has a comment on Bill's blog. I think George's comment make a lot of sense: "Right. BB doesn't get it: nominal spending isn't an indicator to be used in helping the Fed to regulate P and y. It is itself the very thing the Fed ought to regulate. The idea that Py is some sort of composite of two more "fundamental" variables, where the Fed is supposed to be concerned with the stability of each, is a crude fallacy. Neither stability of y nor that of P is desirable per se. Stability of Py, on the other hand--which is to say stability of nominal aggregate demand--is desirable in itself." Right on George! (for those not schooled in econ lingo P is prices and y is real GDP and Py obviously is nominal GDP).