Two comments on the use of NGDP 1. It does not address the major failing with an IT approach - the failure to take into account asset price inflation. We cannot assume that both - asset price growth and GDP growth - are directly related. For example, the DJIA has nearly doubled since 3/09 and equities in general have done really well without it reflecting anyway in the general GDP growth. Or does this mean that we de-link macroeconomic stability in the real economy from the financial markets and rely on separate counter-cyclical measures to address asset inflation?
2. Like horses for courses, there may be a case that NGDP may be an appropriate target now, when economies face disinflationary environments and liquidity trap. But does that also mean it is appropriate for normal times? After all NGDP targets price stability through the nominal GDP, but not inflation directly. If tomorrow, the US economy grows at 6% with 2% inflation and we have an NGDP target of 4%, wouldn't that call for monetary tightening? Will the government and popular opinion concur? If we revise NGDP target then, what is it that prevents central banks from revising inflation target itself in an IT regime? After all both could have the same adverse effect of undermining the hard won inflation fighting credibility of the Fed.