Friday, September 9, 2011
More on the ideal monetary regime
Building on my previous post, I see two major components to Scott Sumner's ideal monetary regime, and I think the emphasis is largely on the wrong one. That is, yes, NGDP targeting is maybe/probably better than inflation targeting, but it's still a system where political appointees take a swag at the target. Saying the actual target doesn't matter is not an ok answer.
That's why the futures market is such a great idea. With an NGDP futures market, it's automatic and self-correcting. We can't screw it up.
Put another way, the monetary crisis since 2008 hasn't been due to inflation targeting. It's been due to missing the inflation target. Human error. Replacing inflation targets with NGDP targets doesn't get us very far if we're still relying on an extremely fallible set of people to make the decisions.
Beyond that, while we really don't know what the hell we're doing when it comes to inflation targeting, there's at least pretty substantial research (and more here)on the question of what the target should be. Which is, you know, a better start than "the actual target doesn't matter".