ARTICLE: Scott Sumner Makes the Case for NGDP Targeting

In a paper written for the Adam Smith Institute (pdf). Quotable:

George Selgin pointed out that NGDP targeting would produce lower than normal inflation during a productivity boom. One of the criticisms of inflation targeting is that because central banks focus on consumer prices, they allow asset bubbles to form, which eventually destabilize the economy. Nominal GDP targeting cannot completely eliminate this problem, but it would impose more monetary restraint (as compared to inflation targeting) during periods where output growth was above normal. Indeed Friedrich Hayek advocated nominal income targeting for exactly that reason, to prevent “malinvestment” during productivity booms.

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Numerical information has no contribution whatever to make to pure economic theory, because there is no numerical information which gives us constants in the sense that we can assume that they’re still true 4 or 5 years hence. — F. H. Hayek

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