While I am completely sympathetic to all of the points Scott Sumner raises I have been reluctant to fully embrace the Market Monetarist School for a couple of reasons.

First, being a neo-Wicksellian/Woofordian I do in fact believe that interest rates and expectations of future interest rates, not money itself stear the nominal economy. I think monetary policy in a world without money works just fine.

While this is an interesting academic dispute its not clear that it matters much for real policy. Market Monetarists believe that long run expectations of monetary policy matter and as long as we agree on that there is no practical difference.

Second, I am becoming more sold on the need for a new policy regime. For one thing I am increasingly skeptical of the dual mandate. As my previous post suggests my concern is that the weighting of the elements of the mandate are regime dependent and that this introduces monetary uncertainty and policy error.

Third, in a deeply practical sense I think selling a higher and steady Nominal Spending target is easier than selling a high inflation target. Especially as we enter a world with unfortunately falling population growth this will be key.

I actually don’t think we will experience much in the way of a fall in TFP growth but I think population growth is actually more important because the particulars of capital accumulation with respect to TFP growth are more variable.

Put another way, given equal GDP growth there is more variance associated with the marginal return on various capital projects under high (frontier) TFP growth than under high population growth or catch up TFP growth.

I believe this means that the associated natural rate of interest is lower.