How does nominal income targeting work?

Thanks to Dr. Kirdan Lees for prompting me to write today’s post. Today’s topic of discussion is nominal income targeting.

What is nominal income targeting? 

Nominal income targeting is usually viewed as an alternative monetary strategy to inflation targeting, and has never explicitly been applied in practice by any central bank. However, there is an overwhelming amount of literature discussing this monetary policy tool and how it compares to the flexible (inflation) targeting.

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When to run the economy hot?

Former Fed Chair Janet Yellen has recently suggested it is a good time to run the US economy hot (in the short-run) underpinned by the argument that the further fall in unemployment rate didn’t drag the inflation up.

The justification behind this is that the Phillips curve appears to have become quite flat.  As a result, stronger demand need not drive up inflation by much – suggesting we have a situation where, even with relatively low unemployment, inflation expectations are strongly anchored. 

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Efficacy of monetary policy under uncertainty

In this post, I am going to talk about the efficacy of monetary policy in the face of uncertainty. 

In an earlier post, I have talked about uncertainty reducing interest rate sensitivity – but does that mean that the efficacy of monetary policy has declined? No, as ultimately, we need to think about how any investment response translates into a change in output!

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Six methods of unconventional monetary policy

In a recent response to questions, The Reserve Bank of Australia has listed six options of unconventional monetary policy that is considered in an event of extreme policy implementation. Westpac economists have also talked about potential unconventional monetary policy tools applicable to the NZ case here – this is worth a read, but is a different list!

In this post I would like to outline the RBA’s options and hopefully make them easy to understand.

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What is the difference between sterilized and unsterilized intervention?

Recently I’ve been trying to get my head around the difference between a “sterilized” asset purchase by a central bank and an “unsterilized” purchase. Here is where I’ve gotten to – happy for any comments or clarifications!

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A New GDP measure (GDP-B) in a digital economy

Although GDP is a good measure of what it is supposed to measure, there are always questions about whether it is the right measure when asking a given policy question. This was the driving motivation behind the Living Standard’s Framework and the development of a suite of measures to inform our views on wellbeing, as I’ve previously written (with Anita King and Nairn MacGibbon).

The focus of this post is on digitization. In an era of digitization, economists have become more and more concerned about whether the conventional way of calculating GDP is appropriate for asking questions about changes in consumer welfare (surplus) through time.

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