Bennett McCallum – grandfather of Market Monetarism

Scott Sumner in a blog post today calls Bennett McCallum “the most respected NGDP advocate in the entire world”. I completely agree with Scott. McCallum’s work on “Nominal Income Targeting” (maybe out of respect for McCallum we should really call it that…) is second to none and everybody interested in the topic should read all of his work (I am getting there…). I am particularly impressed with Dr. McCallum’s work on Nominal Income Targeting in Small Open economies.

If I have time I one day hope to write an overview article of McCallum’s work…Until then take a look at McCallum’s recent paper on “Nominal GDP Targeting”.

See especially McCallum’s discussion about “level” versus “growth” targeting:

“From the foregoing it can be seen that one issue that arises in discussions of nominal GDP targeting is whether the targets should be expressed in terms of “level” or “growth-rate” measures. For an example of the distinction, suppose that the chosen rate of growth of nominal GDP is 4.5% per year. Suppose that in some year, however, the central bank misses that target by a full percentage point on the high side, yielding 5.5% growth consisting of (for example) 3.0 percent inflation and 2.5% real growth. Should the central bank strive for the usual 4.5% growth in nominal GDP again in the following year? Or should it decrease its growth target to 4.0%, aiming thereby to be back at the original path for the nominal GDP level at the end of the next year? In other words, should the nominal GDP targets be set in terms of growth rates or growing levels? In the latter case, the disadvantage will be that policy that decreases nominal growth below its usual target value may be excessively restrictive, whereas the former case leaves open the possibility of cumulative misses in the same direction for a number of periods, i.e., it permits “base drift” away from the intended path. My position on this issue has been that keeping with the target growth rates will, if they are on average equal to the correct value over time, be unlikely to permit much departure from the planned path and so should probably be preferred. This is not at all a universal point of view, however, among nominal GDP supporters.”

It is also interesting that McCallum in his paper acknowledges the work of the blogging Market Monetarists – particularly Scott Sumner – and hopefully the interaction between the Market Monetarists and McCallum will develop in the future.

If Scott Sumner is the father of Market Monetarism then Bennett McCallum is the grandfather – even though some of us might disagree with McCallum’s position in the level vs growth debate.


Update: Steve Walman at Interfluidity has a post on “The moral case for NGDP targeting”.

Update 2: David Beckworth suggests that Bennett McCallum is the godfather of Nominal Income Targeting. I can accept that…even though grandfather seems a bit more friendly;-)

Update 3: Scott Sumner also has an comment on McCallum’s paper. And here is a comment from Marcus Nunes as well.

Leave a comment


  1. Benjamin Cole

     /  October 24, 2011

    Jeez, if nominal GDP comes in one percent high, that will be the least of our problems.

    Yesterday I was arguing with a friend who said that an economic recovery would ignite too-high inflation, as US companies have not been investing in capital equipment. We are trapped.

    Once again, I think economists need to come back into the real business world. If demand is a little too high, yes there will be some inflation, and there will also be a lot of employment and profits.

    The point always is avoid recessions, and avoid piling up public debt for decades on end. The goals are economic growth, prosperity, innovation. If we have moderate or mild inflation is a secondary concern.

    One percent too high on nominal GDP is a “problem?”

    It is important for practitioners of whatever arts to get outside of their worlds and gain broader perspective. Don’t fall in love with your models and theories.

  2. Torben Mark Pedersen

     /  February 26, 2012

    That an ideal monetary regime is one which secures a constant nominal GDP was also also argued by Ludwig von Mises in his The Theory of Money and Credit (1912/1922) and by Friedrich von Hayek in Prices and Production (1931).

    For a discussion of von Mises goal for monetary policy, see the paper by George Selgin in Cato Journal 1999.

  1. Christina Romer comes out in support of NGDP targeting « The Market Monetarist
  2. TheMoneyIllusion » McCallum on NGDP targeting
  3. NGDP level targeting and the Fed’s mandate « The Market Monetarist
  4. Sweden, Poland and Australia should have a look at McCallum’s MC rule « The Market Monetarist

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