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).

Leave a comment


  1. Integral

     /  November 3, 2011

    Fascinating, Lars.

    I’m currently trying to pull together a review of the NGDP targeting literature, and I found this choice quote from Taylor (1985):

    “No one should be interested in fluctuations in nominal GNP per se. The macroeconomic quantities of interest are the fluctuations in real GNP and the price level — the components of nominal GNP. In this sense nominal GNP is not a final target; rather, it is an intermediate target.”

    (J. Taylor (1985), “What would nominal GNP targeting do to the business cycle?”)

    How much the thinking changes!

  2. Integral, yes, it is incredible. Actually it seems like most great economists – which interest in monetary matters – at some point in their life have advocated nominal income targeting.

    I am looking forward to seeing your paper and will be happy to blog about it – or let you write a guest blog on it.

    • Integral

       /  November 3, 2011


      The idea that an NGDP target is a goal unto itself is fairly new, though it seems obvious now. Throughout the literature, the refrain is “one could target NGDP, but the goal variables are really P’s and Y’s, not PY together.” NGDP is always an intermediate target, not a final target. One of the big changes in thinking that Market Monetarists are bringing about is interest in NGDP targeting as a final variable, not a means to some other end.

      I do plan on sending out a draft version of the literature review to you, Scott Sumner and a few other Market Monetarists — even if only so that I don’t miss some major strain of work. My goal is to provide something of a companion piece to your 2011 working paper: where you focus (rightly) on the blogosphere surrounding market monetarism, I intend to trace the evolution of NGDP targeting through the academic literature.

  3. Alex Salter

     /  November 3, 2011

    Bingo. Py is more than just P*y; it’s a different phenomenon entirely. The Fed’s dual mandate blinders are forcing its officers to perceive a false dichotomy. Nominal expenditure is the emergent result of the plans of millions of self-interested traders. Realizing this undoubtedly leads to the importance, in and of itself, of nominal expenditure. To think otherwise means you don’t understand the theory.

  4. I begin to think that this debate about NGDP is going out of any sense. The idea is absolutly correct, but its implementation is not so easy without some complementary indicators. I see NDGP as unique objective flawed by the lags and revision to which is submitted until the definitive figures are obtained. That implies some degree of vagueness and confusion for the expectations of the public.
    You can imagine the discussion if after three years
    the %NGDP of three years ago was not 3% but 7%. In the men time, the Fed has been trying to compensate the 3% with an objective of 6% during two years.
    On the other hand, the case of Swedish Bank proves that a simple objective of inflation doesn´t prevent the central bank of taking the good decision.

  5. Integral

     /  November 3, 2011

    Luis: that’s the idea behind “targeting the forecast”. The Fed would act to stabilize expected NGP four to eight quarters out, as opposed to current-quarter NGDP which is indeed subject to (sometimes substantial) revision.

  6. Hmmm this answer don’t convince me. First, I see a problem of mistake if there is a high diffrence between actual and expected NGDP… that, sooner or later, it will be revised. Second, I don´t believe that target expectations, would be sufficient to move the public.
    AS Noah said
    “NGDP targeting” means “print money and buy stuff”
    Print money and buy anything else. That’s the question.

  7. David Eagle

     /  March 8, 2012

    This comment is to Integral. I also am trying to organize a literature review of nominal-income targeting and NGDP targeting. I am not sure I am going to write a paper on the literature review, but I sure one to write my other papers. It would be good to share what we find.

  1. George Selgin on Bernanke and NGDP targeting « Economics Info

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