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Nick Rowe on long and variable leads

Summary:
David Beckworth directed me to a presentation by Steve Ambler, recommending a policy of NGDPLT. (It was a part of the Bank of Canada’s 5-year review.) Ambler did an excellent job, and one highlight for me was his mention of the Mercatus-funded NGDP futures market: [embedded content] The first discussant was Nick Rowe, who is one of the very few economists I would pay to go listen to. Nick has convinced me that monetary policy is 1% current concrete steps and 99% signaling about the expected future path of policy. He did a very nice job explaining how current spending depends on futures expected monetary policy, which is why we need a regime that stabilizes future expected spending (NGDP). I like how Nick used the “automatic stabilizers” concept, an idea more commonly

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David Beckworth directed me to a presentation by Steve Ambler, recommending a policy of NGDPLT. (It was a part of the Bank of Canada’s 5-year review.) Ambler did an excellent job, and one highlight for me was his mention of the Mercatus-funded NGDP futures market:

The first discussant was Nick Rowe, who is one of the very few economists I would pay to go listen to. Nick has convinced me that monetary policy is 1% current concrete steps and 99% signaling about the expected future path of policy. He did a very nice job explaining how current spending depends on futures expected monetary policy, which is why we need a regime that stabilizes future expected spending (NGDP). I like how Nick used the “automatic stabilizers” concept, an idea more commonly linked to fiscal policy.

The economy would be doing a bit better right now if the public could be convinced that NGDP at the end of 2021 would be about 8% higher than NGDP at the end of 2019.

Inflation targeting doesn’t do as well, as inflation is less closely correlated with things we actually care about, such as output gaps.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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