Incoming Bank of England Governor Mark Carney is delivering a three-hour testimony before Britain’s Treasury Committee this morning.Carney’s name has been associated with nominal GDP targeting – arguably the hottest idea in monetary policy right now, but something that has yet to be taken up by a major central bank.
In a speech in December, Carney talked up the concept, saying it “could in many respects be more powerful than employing thresholds under flexible inflation targeting,” the latter of which is basically what is being employed by the Bank of England at present.
At today’s testimony, Carney said that flexible inflation targeting was the best monetary policy in existence, and the bar for changing the inflation target is high. He also said there was some merit to considering “Fed-style” guidance at the Bank of England.
However, when asked to address nominal GDP targeting, Carney said that the policy had advantages “in theory” at the zero lower bound, but that he remained “far from convinced” that moving to a nominal GDP target is the right thing to do.
Carney even said that an economy in the U.K. economy’s current position is where a nominal GDP target would work best, but qualified that by highlighting the need for the population to understand what the central bank is doing with nominal GDP targeting in order for it to work.
To conclude, Carney said flexible inflation targeting remains a superior alternative to nominal GDP targeting.
The WSJ’s Simon Nixon summed it up best in a tweet:
So Carney has knocked NGDP targeting on the head. Baffled why he ever let himself become associated with it.
— Simon Nixon (@Simon_Nixon) February 7, 2013
Those hoping for Carney to bring the monetary policy revolution to the Bank of England may be a bit disappointed for now.