Nominal GDP Targeting Plus: Answering Doug Henwood's Question with a: "Yes, Expansionary Fiscal Policy Would Be Good"
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. Expansionary fiscal policy may be necessary to make monetary expansion effective--a Jacob Viner thought it was back in 1933.