Thursday, September 8, 2011

Everyone loves NGDP Targeting

One question I'd like settled before the Fed (as a collection of interested parties)- rather than a notional futures market - engages in NGDP targeting is how to set the target. Without hand-waving, can anyone reasonably say why a 6% target is the right target and not 7%? How's about 10%? I mean, if we want more growth, why not?!

It's not hard to see where this would go. Replace all the above-mentioned political hand-wringing about multipliers and GM with political pressuring for "just a little bit more" income and jobs. That could be a hell of a Pandora to let out of the box in any case... but especially if our theory of target-setting is essentially taking a swag.

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