Carney endorses NGDP level targeting!

Mark Carney’s speech last night:

For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP.

…when policy rates are stuck at the zero lower bound, there could be a more favourable case for NGDP targeting. The exceptional nature of the situation, and the magnitude of the gaps involved, could make such a policy more credible and easier to understand.

Huge news for the market monetarists! Here is comment from Sumner and Britmouse.

  • Matt Nolan

    It seems to me he is talking about using history dependence (level targeting) in the case we hit the ZLB – while continuing with non-history dependence (growth targeting) the rest of the time. This makes sense – and tbh is the way people would have seen policy prior to the crisis. In 2010, it was the way we were even describing what central banks were doing!