Hoisted from Comments: Implementing Nominal GDP Targeting without Actually Buying Any Assets Edition
Implementing Nominal GDP Targeting via Monetary Authorities Alone:
Andy Harless said...
Yes, it only works with the real Chuck Norris, and even then it won't work if he has a broken right arm. Which leaves us with 3 problems:
A merely hypothetical Chuck Norris does us no good at all.
Even at his most aggressive, Ben Bernanke is no Chuck Norris.
The laws governing the Federal Reserve System may require Chuck Norris to break his arm before he becomes chairman. At least they will require him to wear a cast that makes it look like his arm might be broken. I'm guessing the cast would turn out to be a fake, but a lot of people are going to end up on the floor in the second room before everyone else moves to the first.
Also, it's not clear that a "clean" good equilibrium even exists. There is some "good" equilibrium, but it may require a much higher rate of nominal GDP growth than the market monetarists have in mind. With level targeting, we would get to this "good" equilibrium eventually, but it might not seem so good once we got there. Moreover, unless the underlying conditions change, the rate of NGDP growth for the target path would still not be an equilibrium, so even the "good" equilibrium would only be temporary. If the real interest rate associated with full employment is a big negative number, there's no way even Chuck Norris can give us a smooth 5% growth path for NGDP.
Nick Rowe said...
You wanna send Chuck Norris and Marlon Brando into the room together? They make exactly the same threat? Chuck does the hitting/printing; Marlon decides who gets hit/what gets bought? Couldn't hurt. Could only help, if they make a joint announcement of the same NGDP target. (Would be a credibility disaster if they announce different targets, because then Chuck and Marlon just end up fighting each other).
"Trouble is", Chuck whispers to Marlon, "you better not buy anything we can't sell back easily, because we're gonna have to reverse course damn' fast when people see we're serious".
And, of course, if you don't buy assets that you can't sell back easily, nobody will ever believe that you are serious.
