{"id":5952,"date":"2012-10-31T02:09:43","date_gmt":"2012-10-31T06:09:43","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=5952"},"modified":"2012-10-31T02:09:43","modified_gmt":"2012-10-31T06:09:43","slug":"should-the-fed-be-targeting-inflation","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/31\/should-the-fed-be-targeting-inflation\/","title":{"rendered":"Why the Fed should not target inflation"},"content":{"rendered":"

Scott Sumner, Professor of Economics at Bentley University, proposes that the Fed target nominal growth in GDP (“NGDP”) rather than inflation as Ben Bernanke has long advocated:<\/p>\n

“Even he [Bernanke] must be surprised and disappointed with how poorly [inflation targeting] worked during the recent crisis.”<\/p><\/blockquote>\n

The primary problem, Sumner points out, is that measures of inflation are highly subjective and often inaccurate.<\/p>\n

“The problem seems to be that, according to the Bureau of Labor Statistics, housing prices did not fall. On the contrary, their data shows housing prices actually rising between mid-2008 and mid-2009, despite one of the greatest housing market crashes in history. And prices did not rise only in nominal terms; they rose in relative terms as well, that is, faster than the overall core CPI. If we take the longer view, the Bureau of Labor Statistics finds that house prices have risen about 8 percent over the past six years, whereas the famous Case-Shiller house price index shows them falling by nearly 35 percent. That is a serious discrepancy, especially given that housing is 39 percent of core CPI……..<\/p>\n

There are errors in the measurement of both inflation and NGDP growth. But to an important extent, the NGDP is a more objectively measured concept. The revenue earned by a computer company (which is a part of NGDP) is a fairly objective concept, whereas the price increase over time in personal computers (which is a part of the CPI) is a highly subjective concept that involves judgments about quality differences in highly dissimilar products.”<\/p><\/blockquote>\n

Inflation targeting also encourages policymakers to think in terms of monetary policy affecting inflation and fiscal policy affecting real growth — “a perception that is both inaccurate and potentially counterproductive”.<\/p>\n

“Advocates like Bernanke see [inflation targeting] as a tool for stabilizing aggregate demand and, hence, reducing the severity of the business cycle. This is understandable, as demand shocks tend to cause fluctuations in both inflation and output. So a policy that avoids them should also stabilize output. I have already discussed one problem with this view: The economy might get hit by supply shocks, as when oil prices soared during the 2008 recession……..”\n<\/p><\/blockquote>\n

Linking monetary policy (and the money supply) to nominal GDP growth would offer a far more stable growth path than the present system of inflation targeting.<\/p>\n

via THE CASE FOR NOMINAL GDP TARGETING | Scott Sumner (pdf)<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Scott Sumner, Professor of Economics at Bentley University, proposes that the Fed target nominal growth in GDP (“NGDP”) rather than inflation as Ben Bernanke has long advocated: “Even he [Bernanke] must be surprised and disappointed with how poorly [inflation targeting] worked during the recent crisis.” The primary problem, Sumner points out, is that measures of … <\/p>\n

Continue reading “Why the Fed should not target inflation”<\/span><\/a><\/p>\n","protected":false},"author":1,"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":[1833,2487],"class_list":["post-5952","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","tag-inflation-targeting","tag-nominal-gdp-targeting"],"yoast_head":"\nWhy the Fed should not target inflation - 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 not target inflation - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Scott Sumner, Professor of Economics at Bentley University, proposes that the Fed target nominal growth in GDP (“NGDP”) rather than inflation as Ben Bernanke has long advocated: “Even he [Bernanke] must be surprised and disappointed with how poorly [inflation targeting] worked during the recent crisis.” The primary problem, Sumner points out, is that measures of … Continue reading "Why the Fed should not target inflation"\" \/>\n<meta property=\"og:url\" content=\"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/31\/should-the-fed-be-targeting-inflation\/\" \/>\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:author\" content=\"https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/\" \/>\n<meta property=\"article:published_time\" content=\"2012-10-31T06:09:43+00:00\" \/>\n<meta name=\"author\" content=\"Colin Twiggs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Colin Twiggs\" \/>\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\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/\"},\"author\":{\"name\":\"Colin Twiggs\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#\\\/schema\\\/person\\\/d42b18d516a80149d739845749ac6454\"},\"headline\":\"Why the Fed should not target inflation\",\"datePublished\":\"2012-10-31T06:09:43+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/\"},\"wordCount\":398,\"commentCount\":7,\"publisher\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#organization\"},\"keywords\":[\"inflation targeting\",\"nominal GDP targeting\"],\"articleSection\":[\"Banks & Interest Rates\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/\",\"name\":\"Why the Fed should not target inflation - the patient investor\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\"},\"datePublished\":\"2012-10-31T06:09:43+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/index.php\\\/2012\\\/10\\\/31\\\/should-the-fed-be-targeting-inflation\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/thepatientinvestor.com\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Why the Fed should not target inflation\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/thepatientinvestor.com\\\/#website\",\"url\":\"https:\\\/\\\/thepatientinvestor.com\\\/\",\"name\":\"The Patient Investor\",\"description\":\"Smart. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\\\/2009 and 2020 bear markets well ahead of actual events. 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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":6466,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/12\/12\/feds-numerical-thresholds-are-a-bad-idea\/","url_meta":{"origin":5952,"position":1},"title":"Fed\u2019s numerical thresholds are a bad idea","author":"Colin Twiggs","date":"December 12, 2012","format":false,"excerpt":"The Fed effectively tied its monetary policy to a balloon bobbing in the wind. Pedro da Costa writes on Reuters: The Federal Reserve on Wednesday took the unprecedented step of tying its low rate policy directly to unemployment, saying it will keep rates near rock bottom until the jobless rate\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":12366,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/09\/25\/japan-abandons-fed-style-inflation-targeting-and-targets-gdp-growth-instead\/","url_meta":{"origin":5952,"position":2},"title":"Japan abandons Fed-style inflation targeting and targets GDP growth instead","author":"ColinTwiggs","date":"September 25, 2015","format":false,"excerpt":"Scott Sumner quotes Marcus Nunes: Japanese Prime Minister Shinzo Abe vowed on Thursday to raise gross domestic product by nearly a quarter to 600 trillion Japanese yen ($5 trillion), pledging to refocus on the economy after the passage of controversial security bills that eroded his popularity. Abe unveiled the plan\u2026","rel":"","context":"In "Stock Markets"","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"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":5952,"position":3},"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":14117,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/09\/13\/credit-bubbles-and-gdp-targeting\/","url_meta":{"origin":5952,"position":4},"title":"Credit bubbles and GDP targeting","author":"ColinTwiggs","date":"September 13, 2016","format":false,"excerpt":"In 2010 Scott Sumner first proposed that the Fed use GDP targeting rather than targeting inflation, which is prone to measurement error. Since then support for this approach has grown, with Lars Christensen, an economist with the Danish central bank, coining the term Market Monetarism. Sumner holds that inflation is\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":6460,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/12\/12\/carney-broaches-dumping-inflation-target-ft-com\/","url_meta":{"origin":5952,"position":5},"title":"Carney broaches dumping inflation target | FT.com","author":"Colin Twiggs","date":"December 12, 2012","format":false,"excerpt":"Claire Jones reports that Mark Carney says central banks should consider scrapping inflation targets and target nominal GDP instead -- allowing more aggressive measures during a down-turn. [Mark Carney, next governor of the Bank of England] suggested that a nominal GDP target, where a central bank sets monetary policy based\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\/5952","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\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=5952"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/5952\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=5952"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=5952"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=5952"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}