Stanley Fischer - this guy can keep NGDP on a straight line

Stanley Fischer - this guy can keep NGDP on a straight line
This is from Reuters:
Stanley Fischer, who led the Bank of Israel for eight years until he stepped down in June, has been asked to be the Federal Reserve's next vice chair once Janet Yellen takes over as chief of the U.S. central bank, a source familiar with the issue said on Wednesday. Fischer, 70, is widely respected as one of the world's top monetary economists. At the Massachusetts Institute of Technology, he once taught current Fed Chairman Ben Bernanke and Mario Draghi, the European Central Bank president. Yellen, the current Fed vice chair, is expected to win approval from the U.S. Senate next week to take the reins from Bernanke, whose term ends in January. Fischer, as an American-Israeli, was widely credited with guiding Israel through the global economic crisis with minimal damage. For the Fed, he would offer the fresh perspective of a Fed outsider yet offer some continuity as well.
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 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."
While at the Bank of Israel Fischer certainly conducted monetary policy as if he was targeting the level of nominal GDP. Just take a look at the graph below and note the "missing" crisis in 2008. NGDP Israel
Undoubtedly Fischer had some luck, while at the BoI, and I must also say that I think he from time to time had a problem with his "forward guidance", but his track-record speaks for itself - while Bank of Israel  governor, Stanley Fischer provided unprecedented nominal stability, something very rare in Israeli economic history. Lets hope he will help do that at the Fed as well.



Sign up now to receive the latest blog posts and news about our research.