Brad Delong suggests we need a combination of monetary and fiscal policy. I am not opposed to that but I think the statement could do it alone.
You would say something like the following.
The Committee judges that economic conditions will warrant exceptionally low levels for the Federal Funds rate until current value Gross Domestic Product exceeds $19.5 Trillion.
$19.5 Trillion is the level we would have reached in late 2013 had we continued on a 5% growth path. The key is coming up with the target date then you derive the NGDP number and set the funds rate conditional upon that.
I think coming up with something like a Taylor rule for NGDP is useful. If its already be done let me know, if not I am on it.
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Wednesday ~ October 19th, 2011 at 10:05 pm
Bill Woolsey
You need a growth path, not a particular level.
It is a series of levels and dates.
There is, of course, a growth rate for those levels. But the rule is not about the growth rate at all. This level of this date, that level at that date.
Thursday ~ October 20th, 2011 at 10:10 am
Karl Smith
Bill, you are of course right.
My thought though is how to convert that type of logic into a series of policy statements regarding the Funds Rate.
Perhaps, it is my conservative nature, but I feel that baby steps are needed. Target NGDP but still communicate via Rate targets
Thursday ~ October 20th, 2011 at 12:41 am
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Thursday ~ October 20th, 2011 at 3:11 am
FT Alphaville » Further reading
[...] – So, you want to target NGDP levels… [...]
Thursday ~ October 20th, 2011 at 6:28 am
Peter
There’s the McCallum rule. But I think it’s only for base money growth instead of the federal funds rate.
The Fed could use the NGDP gap as a modifier for the inflation target and then use the old trusty Taylor rule: http://blog.ngdp.info/2011/10/less-scary-leap-for-central-banks.html
Thursday ~ October 20th, 2011 at 8:08 am
Andy Harless
NGDP targeting is a special case of a modified Taylor Rule, as I discussed in my last blog post http://blog.andyharless.com/2011/05/fixing-whats-wrong-with-taylor-rule.html (In the extreme case — taking literally the version proposed by Scott Sumner, where NGDP futures are kept constantly on target — the coefficients go to infinity.)
Thursday ~ October 20th, 2011 at 9:19 am
Th
Karl, your statement isn’t scary enough. Leave out any specific policy like low funds rate, and just say the Committee is going to make it happen using any and all powers granted to the Committee under law.
Thursday ~ October 20th, 2011 at 4:26 pm
JS
Logical in a way, yet, perhaps a bit too close to the old joke about a corporate management announcing to its employees, “The beatings shall continue until morale improves.”