Jan Hatzius And Sven Jari Stehn Of Goldman Sachs Call For NGDP Level Targeting And Monetary Stimulus by Yglesias

“NGDP level targeting” can sound very technical. But in ordinary language terms, what it means under the present circumstances is that the Fed should say “we would welcome a spurt of unemployment-reducing catch-up growth even if it means needing to tolerate a bit of inflation.” You hear a lot about the need to create more “confidence,” which is generally interpreted as a psychological notion. Be nice to businessmen and make them feel good about themselves. What matters more is expectations, and in particular the coordination of expectations. A firm statement from the central bank that they’re undertaking actions designed to spur catch-up growth and that they’re willing to tolerate a modest increase in inflation to get there alters expectations in a positive way no matter how CEOs feel about Barack Obama.

DeLong on the proposal:

They hope such a policy could lower the unemployment rate by two full percentage points--from 8.5% to 6.5%--as of mid-2013.

The whole purpose of an independent central bank is so that it can do the right thing with respect to its dual mandate, and nominal GDP level targeting plus quantitative easing now looks to be the right thing to do.