# 2 and #3 do not directly address NGDP targeting vs interest rate targeting or FAIT. It is not a criticism of those arguments per se; FIT was not an issue to be addressed iin the 60’s and 70’2 (when I was in grad school. 😊).
#1 Starts from premises that seem totally unnecessary:
“AIT framework. Why? Because it is a suggestion that flows directly from a New Keynesian model where the interest rate is constrained by the zero-lower- bound.
The oldest reference to AIT I found was a Working Paper from 2000, published in 2005. The Phillips Curve is the driving force of the model (despite the economy being far from the ZLB at the time.”
I do not see how an inflation _target_ (or any other target) has anything to do with which instruments might be used to achieve it. Higher inflation (and NGDP growth) was certainly desirable 2008=2020 when ST interest rates were near the ZLB. Likewise, it has nothing to do with a Phillips curve in which inflation is supposedly driven by higher or lower labor unemployment rates.
It IS the case that undershooting the (appropriately chosen) inflation target will imply slow adjustment of relative prices to shocks and so to slow market clearance and so to unemployment of resources, including labor. Ex post there will be a correlation of high labor unemployment and low employment, but the causation is the opposite of the typical Phillips Curve explanation. The data points of a Phillips Curve are the result of monetary policy mistakes.
More generally none of the three papers seen to reference models in which both employment and production are heterogeneous and so are inappropriate for dealing with sector level shocks that require change in relative prices, in principle of all relative prices and certainly NOT just the price of labor and good & services, each modeled as homogeneous.
I'll keep looking. #1 could arrive at a valid concussion even starting from unnecessary premises. But you have seem what I will be looking for. What differences in policy instruments is implied by targeting NGDP rather than inflation and why the NGDP set of instrument rate changes results in better outcomes?
Thomas
Send me an e-mail: joaomarcus.marinhonunes@gmail.com
Just found out that we have "1 yr in common"
Thomas, thanks for the Kudos!
1. My arguments against FAIT (initially AIT):
https://thefaintofheart.wordpress.com/2020/10/09/is-the-new-monetary-policy-framework-ait-an-improvement/
2. 50 yrs ago, Friedman made a good case for NGDP Targeting:
https://thefaintofheart.wordpress.com/2021/01/26/does-the-monetary-theory-of-nominal-income-stand-scrutiny/
3. Later he operationalized NGDP-T by suggesting the "thermostat analogy"
https://thefaintofheart.wordpress.com/2011/03/07/find-the-thermostat/
I'll give them a look and get back to help you prepare for your confirmation. :)
First thoughts:
# 2 and #3 do not directly address NGDP targeting vs interest rate targeting or FAIT. It is not a criticism of those arguments per se; FIT was not an issue to be addressed iin the 60’s and 70’2 (when I was in grad school. 😊).
#1 Starts from premises that seem totally unnecessary:
“AIT framework. Why? Because it is a suggestion that flows directly from a New Keynesian model where the interest rate is constrained by the zero-lower- bound.
The oldest reference to AIT I found was a Working Paper from 2000, published in 2005. The Phillips Curve is the driving force of the model (despite the economy being far from the ZLB at the time.”
I do not see how an inflation _target_ (or any other target) has anything to do with which instruments might be used to achieve it. Higher inflation (and NGDP growth) was certainly desirable 2008=2020 when ST interest rates were near the ZLB. Likewise, it has nothing to do with a Phillips curve in which inflation is supposedly driven by higher or lower labor unemployment rates.
It IS the case that undershooting the (appropriately chosen) inflation target will imply slow adjustment of relative prices to shocks and so to slow market clearance and so to unemployment of resources, including labor. Ex post there will be a correlation of high labor unemployment and low employment, but the causation is the opposite of the typical Phillips Curve explanation. The data points of a Phillips Curve are the result of monetary policy mistakes.
More generally none of the three papers seen to reference models in which both employment and production are heterogeneous and so are inappropriate for dealing with sector level shocks that require change in relative prices, in principle of all relative prices and certainly NOT just the price of labor and good & services, each modeled as homogeneous.
I'll keep looking. #1 could arrive at a valid concussion even starting from unnecessary premises. But you have seem what I will be looking for. What differences in policy instruments is implied by targeting NGDP rather than inflation and why the NGDP set of instrument rate changes results in better outcomes?