Over at the Twitter Machine Doug Henwood complains:
@DougHenwood: @delong Will someone explain to me just how "targeting" NGDP will change anything? What more could the Fed do without fiscal help?Well, if the Federal Reserve supports its nominal GDP level target by--as Goldman Sachs's Jan Hatzius wants--buying $100 billion of long-term bonds a day for cash over the next month, then the Federal Reserve will have freed up some risk-bearing capacity and banks will be willing to loan more to finance business investment and aggregate demand will rise.
So it would do something. Enough to make its target NGDP growth path automatically credible? God only knows.
That's why I'm in the "print money and buy stuff" camp.
Currently, I am rereading William Greider's excellent Secrets of the Temple which was published in 1987. The subject of nominal GDP comes up a few times. It's February 1982 and the Fed is tightening but confused over the effects it's targeting of M-1 was having on the economy.Expansionary fiscal policy may be necessary to make monetary expansion effective--a Jacob Viner thought it was back in 1933.
[non-monetarist Boston Fed President Frank] Morris proposed that the Fed instead base its policy decisions on other indicators - the growth of all liquid assets or total debt in the real economy or even a broad goal for the size of nominal GDP. If the confusing mystique of the Ms was discarded in favor of more familiar economic guideposts, the public (and the politicians) would at least have a better grasp of what the Federal Reserve was actually doing - regulating overall credit and growth for the entire national economy, "One advantage of the nominal GDP as a goal is that it would upgrade the quality of the dialogue on monetary policy," Morris said.Either the Fed can ease more or it can't. Bernanke say they can if inflation drifts lower. Minneapolis Fed President Kocherlakota say they could "put downward pressure on long-term market interest rates in at least two ways. First, it could buy more long-term Treasury securities or securities issued by government-sponsored enterprises like Fannie Mae and Freddie Mac. Second, the Committee could extend its prediction for how long it will keep its target short-term interest rate exceptionally low. So, tools—and choices—remain." Philadelphia Fed President Plosser argues against inflation (pay wall) so presumably he feels they can inflate.
If I were Charlie Evans I would point to the swirling European Feedback Cycle of Doom to bolster my argument for additional policy accommodation.