For the past couple of weeks, Goldman’s economics analysts have lead to a big popularization in the idea that the Fed ought to target a specific Nominal GDP and make sure it happens.NGDP targeting is an idea that’s been kicking around economic circles for a while, but Goldman’s advocacy of this has taken it to the next level.
Well, they’re at it again.
In a note out last night:
- Chicago Fed President Charles Evans recently argued that a symmetric weighting of the Fed’s “dual mandate” to support maximum employment and price stability would require significant additional monetary easing.
- In today’s comment we show that President Evans’ view that more easing is appropriate is consistent with an “optimal” monetary policy in a simple model of the economy. First, we find that an optimal policy would put more weight on unemployment stabilisation in a Taylor-type rule than those that fit actual Fed policymaking. Second, we show that an optimal policy–assuming perfect credibility–would tolerate above-target inflation as the price of reducing unemployment.
- These results reinforce our view that additional stimulus would be desirable and that Fed officials should consider use of their “unconventional” unconventional policy options, such as pairing a commitment to achieve a nominal GDP level target with additional large-scale asset purchases.
Without going into the technicals of the argument, we think the key idea here is just that this big firm has really gone whole-hog onto this idea, blasting out daily notes to clients on the subject.