{"id":13626,"date":"2016-07-29T23:05:18","date_gmt":"2016-07-30T03:05:18","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=13626"},"modified":"2016-07-29T23:05:18","modified_gmt":"2016-07-30T03:05:18","slug":"why-the-fed-should-use-ngdp-targeting","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2016\/07\/29\/why-the-fed-should-use-ngdp-targeting\/","title":{"rendered":"Why the Fed should use NGDP targeting"},"content":{"rendered":"

Good point made by R.A. in The Economist<\/em> as to why the Fed should target nominal GDP rather than inflation:<\/p>\n

One of the strongest points in favour of NGDP targeting, in my view, is that it implied a need for far more action from the Fed far earlier in this business cycle. People remember how aggressively the Fed intervened to prop up the financial system in the fall of 2008, but they forget how slow the central bank was to react to what was obviously a precipitous decline in the macroeconomy. The fed funds rate stayed at 2% from April until October of 2008. The Fed didn’t ramp up its initial asset purchase programme above $1 trillion until March of 2009, at which point the economy had already lost some 6m jobs. Why the delay? One data point worth noting: the monthly core inflation rate was positive throughout 2008 and 2009. NGDP growth, by contrast, was already negative in the third quarter of 2008, and was sharply negative in the fourth quarter of that year, when total spending in the economy shrank at an 8.4% annual pace. A central bank with an explicit NGDP level target would have faced (appropriately) intense pressure to do much more much sooner than one with the Fed’s present, vague focus on an inflation target as a means to broader macroeconomic stability.<\/p><\/blockquote>\n

If we look at the graph below, it is likely the Fed would have cut the funds rate to near zero by May 2008, when Q1 GDP results were available — possibly earlier if they were using surrogates to give more up-to-date measures of GDP — rather than waiting until November 2008.<\/p>\n

\"Fed<\/p>\n

But that misses the key point. The Fed would have intervened far earlier with tighter monetary policy — in late 2003 when GDP growth jumped to 6.4 percent — and prevented the bubble from forming.<\/p>\n

Source: Monetary policy: Understanding NGDP targeting | The Economist<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Good point made by R.A. in The Economist as to why the Fed should target nominal GDP rather than inflation: One of the strongest points in favour of NGDP targeting, in my view, is that it implied a need for far more action from the Fed far earlier in this business cycle. People remember how … <\/p>\n

Continue reading “Why the Fed should use NGDP targeting”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31],"tags":[],"class_list":["post-13626","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates"],"yoast_head":"\nWhy the Fed should use NGDP targeting - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why the Fed should use NGDP targeting - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Good point made by R.A. in The Economist as to why the Fed should target nominal GDP rather than inflation: One of the strongest points in favour of NGDP targeting, in my view, is that it implied a need for far more action from the Fed far earlier in this business cycle. People remember how … Continue reading "Why the Fed should use NGDP targeting"\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2016\/07\/29\/why-the-fed-should-use-ngdp-targeting\/\" \/>\n<meta property=\"og:site_name\" content=\"the patient investor\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/profile.php?id=61572934660810\" \/>\n<meta property=\"article:published_time\" content=\"2016-07-30T03:05:18+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/thepatientinvestor.com\/wp-content\/uploads\/2016\/07\/2016-07-29-ffr.png\" \/>\n<meta name=\"author\" content=\"ColinTwiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"ColinTwiggs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/\"},\"author\":{\"name\":\"ColinTwiggs\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#\\\/schema\\\/person\\\/cb072791ac83e8bae585007c133d54a5\"},\"headline\":\"Why the Fed should use NGDP targeting\",\"datePublished\":\"2016-07-30T03:05:18+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/\"},\"wordCount\":317,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/thepatientinvestor.com\\\/wp-content\\\/uploads\\\/2016\\\/07\\\/2016-07-29-ffr.png\",\"articleSection\":[\"Banks & Interest Rates\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/\",\"name\":\"Why the Fed should use NGDP targeting - the patient investor\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/thepatientinvestor.com\\\/wp-content\\\/uploads\\\/2016\\\/07\\\/2016-07-29-ffr.png\",\"datePublished\":\"2016-07-30T03:05:18+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#primaryimage\",\"url\":\"https:\\\/\\\/i0.wp.com\\\/thepatientinvestor.com\\\/wp-content\\\/uploads\\\/2016\\\/07\\\/2016-07-29-ffr.png?fit=1300%2C501&ssl=1\",\"contentUrl\":\"https:\\\/\\\/i0.wp.com\\\/thepatientinvestor.com\\\/wp-content\\\/uploads\\\/2016\\\/07\\\/2016-07-29-ffr.png?fit=1300%2C501&ssl=1\",\"width\":1300,\"height\":501},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2016\\\/07\\\/29\\\/why-the-fed-should-use-ngdp-targeting\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/thepatientinvestor.com\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Why the Fed should use NGDP targeting\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/\",\"name\":\"The Patient Investor\",\"description\":\"Smart. 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Sumner who holds a Ph.D. from the University of Chicago, made a suggestion in the late 1980s to the New York Federal Reserve. He proposed that the Fed set a target for nominal GDP\u2014real growth in GDP plus the rate of inflation. He felt\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7004,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/16\/ngdp-level-targeting-the-true-free-market-alternative-we-try-again-the-market-monetarist\/","url_meta":{"origin":13626,"position":2},"title":"NGDP level targeting \u2013 the true Free Market alternative (we try again) | The Market Monetarist","author":"Colin Twiggs","date":"March 16, 2013","format":false,"excerpt":"Scott Sumner suggests that NGDP targeting is a far more conservative approach than the current inflation targeting practiced by the Fed and many other central banks: Most of the blogging Market Monetarists have their roots in a strong free market tradition and nearly all of us would probably describe ourselves\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7076,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/19\/fed-ngdp-targeting-would-greatly-increase-global-financial-stability-the-market-monetarist\/","url_meta":{"origin":13626,"position":3},"title":"Fed NGDP targeting would greatly increase global financial stability | Market Monetarist","author":"Colin Twiggs","date":"March 19, 2013","format":false,"excerpt":"Lars Christensen describes how NGDP targeting would help the global economy withstand shocks like another eurozone crisis: Lets look at two different hypothetical US monetary policy settings. First what we could call an \u2018adaptive\u2019 monetary policy rule and second on a strict NGDP targeting rule. \u2018Adaptive\u2019 monetary policy \u2013 a\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7732,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/05\/12\/the-monetary-policy-revolution\/","url_meta":{"origin":13626,"position":4},"title":"The monetary policy revolution","author":"ColinTwiggs","date":"May 12, 2013","format":false,"excerpt":"James Alexander, head of Equity Research at UK-based M&G Equities, sums up the evolution of central bank thinking. He describes the traditional problem of inadequate response by central banks to market shocks like the collapse of Lehman Brothers: Although wages hold steady when nominal income falls, unemployment tends to rise\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":6354,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/12\/04\/fed-set-to-unveil-extra-asset-purchases-ft-com\/","url_meta":{"origin":13626,"position":5},"title":"Fed set to unveil extra asset purchases – FT.com","author":"Colin Twiggs","date":"December 4, 2012","format":false,"excerpt":"Robin Harding at FT writes: The other issue on the agenda is replacing the FOMC\u2019s current forecast that rates will stay low until mid-2015 with a set of preconditions for the economy to reach before it considers raising rates. \u201cI now think a threshold of 6.5 per cent for the\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/13626","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=13626"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/13626\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=13626"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=13626"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=13626"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}