Here is Mark Carney present governor of Bank of Canada and the next governor of Bank of England:
“If yet further stimulus were required, the policy framework itself would likely have to be changed.19 For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP (Chart 4).
Bank of Canada research shows that, under normal circumstances, the gains from better exploiting the expectations channel through a history-dependent framework are likely to be modest, and may be further diluted if key conditions are not met. Most notably, people must generally understand what the central bank is doing – an admittedly high bar.20
However, when policy rates are stuck at the zero lower bound, there could be a more favourable case for NGDP targeting. The exceptional nature of the situation, and the magnitude of the gaps involved, could make such a policy more credible and easier to understand.21
Of course, the benefits of such a regime change would have to be weighed carefully against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation-targeting framework.“
I stole this from Nick Rowe. Thanks for the very good news Nick – it seems like Carney will try to move Bank of England in the right direction and there is no doubt that a number of Cabinet members in Cameron’s government has sympathy for NGDP targeting.
The Bank of England showed the way in 1931 – could it do it again in 2013? I certainly hope so – now we just need an official endorsement of NGDP level targeting from the UK government. George Osborne what are you waiting for?