Re-opening the NGDP targeting argument

Did you follow the NGDP targeting debate with interest but bemoan the lack of theoretical arguments? Then you’ll love the latest iteration of the debate, in which ex-Bank of England macroeconomist, Tony Yates, takes on Oxford’s Simon Wren-Lewis.

Tony’s initial swings at NGDP targeting focus on the sub-optimality of weighting inflation and output equally:

I don’t see that following a levels target of any variety, NGDP or otherwise, is an alternative to raising the long run average inflation rate, however implemented.  There’s no choice but to bite the bullet and figure out a different trade-off, between the costs of long run higher inflation, and the costs of higher volatility imposed by missing stimulus at the zero bound.

Simon is more positive about NGDP targets and garners another reply from Tony. The whole exchange is well worth reading for anyone with an interest in monetary policy.