Its a cool little explanation of the benefits, and the functioning of monetary policy – specifically through expectations. I also appreciated that Hayek was mentioned – Hayek was a fan of the nominal income rule, a fact many people don’t realise given belief that NGDP targeting is “left wing” and Hayek is “right wing”. Economists are never as simple as we like them to be
As I’ve said before I don’t agree with NGDP targeting for NZ at the moment. I see NGDP targeting vs flexible inflation targeting as akin to the level vs growth targeting – and I’m still on the side of rate of change targeting. However, it is an area where I could easily be turned around … and if NZ was to introduce NGDP targeting I wouldn’t suddenly get all wound up and talking about it being the end of the world, I would assume that we were following the policy rule because our view of what target best represents “good policy” has changed.
For those wondering, if you target a “level” then previous “policy failure” counts – in a NGDP targeting framework, changes in the terms of trade (for example) will be picked up as policy failure in a way that would elicit a response when they “shouldn’t”. This is why I prefer inflation targeting based on a clear version of inflation like the dynamic factor model the RBNZ has. However, even in this case we may decide that nominal income growth is a better target than price growth – that is an issue I’d like to spend more time thinking about.
A big thing for me is that we stick to a time consistent rule, instead of falling into the trap of thinking we can hide taxation through central bank actions