Goodhart on NGDP

Quick link to Charles Goodhart's take on this purported shift in paradigm for central bankers and monetary policy in general. This is one of those that needs to be read in full because he makes somewhat valid assertions and interesting points of caution. 

" The fear is that, once the sell-by date of these initiatives passes, central bankers will be acting contrary to everything learnt, painfully, in the 1970s. They will be relating monetary management to real variables on a longer-term basis. In the end, any short-term benefit will be dwarfed by the long-run pain as they push inflation higher in the vain pursuit of a real economic objective."

Essentially what Goodhart is reminding us of is that one shouldn't look at the whole NGDP-targeting discussion as something so radically new and brilliant that it becomes a panacea for the world. The most important point that he then goes on to make, and I think this is the most valid, is that:

" Adopting a nominal income (NGDP) target is viewed as innovative only by those unfamiliar with the debate on the design of monetary policy of the past few decades. No one has yet designed a way to make it workable given the lags in the transmission of monetary policy and the publication of national income and product. Rather, a NGDP target would be perceived as a thinly disguised way of aiming for higher inflation. As such, it would unloose the anchor to inflation expectations, which could raise, not lower, interest rates by elevating uncertainty about the central bank’s reaction function."

It is easier to make statements like the last knowing fully well that the evidence to either back it up or refute it is near-impossible to determine beforehand. 

You could think of this as an old school plea, a note of caution or whatever you will, but each of these issues - the transmission of monetary policy - inflationary expectations - and a central bank's role in maintaining credibility or issuing forward guidance to name a few -  are far more complicated than a simple or even gradual switch would indicate. 

The broader point being made, perhaps is George Santayana's - that those who cannot remember the past, are condemned to repeat it. 

I'm not entirely convinced of the parallels, but there's certainly no harm in listening!