It’s time to update my current preferences on monetary policy:

Monetary authority structure:

1.  As in the UK, monetary policy decisions should be made by a committee of monetary specialists. They need not be economists, but they must be experts. Self-taught is fine. Financial regulatory decisions should be made by a separate (Treasury) committee, composed of experts on finance.

2.  The FR Board should continue to be independent. The regional Fed banks should be abolished.

3.  The Fed balance sheet should be moved over to the Treasury so that the Fed does not incur any balance sheet risk.

4.  Anyone should be able to have a “reserve” account at the Treasury. It would pay no interest. I.e., electronic cash.

5.  Paper currency should not be abolished (as it provides privacy.)

Policy Tool:

The Fed should use just one tool, open market operations. Generally, these operations should involve Treasury securities. There’s no need for the Fed to recommend discount lending, reserve requirements and interest on reserves as tools of monetary policy. Other assets should be purchased only if necessary. If we don’t get my optimal NGDP level targeting strategy and the zero bound problem occurs frequently, then there is a much stronger argument for making the purchase of other (non-Treasury) assets a routine part of the policy.  Bank bailouts should be done by the Treasury, if at all. (Hopefully not at all.) There should be an iron curtain between the Fed and the banking system, like the separation of church and state.

Policy Target:

Nominal growth targets should be high enough to avoid the zero bound problem. With level targeting, a 4% NGDP growth rate should be high enough. We should target expected per capita NGDP growth, level targeting. (Perhaps the growth of one basis point a day is a nice round number, for that future time when “big data” allows us to know daily changes in NGDP.) A nominal total labor compensation target is better for some countries. The Fed should completely offset the impact of any fiscal policy action.

Policy Rule:

The Fed should commit to a “guardrails approach”, a willingness to sell unlimited NGDP futures contracts at an implied NGDP growth rate slightly above target and buy unlimited NGDP futures contracts at an implied NGDP growth rate slightly below target.

Policy Accountability and Transparency:

The Fed should report to Congress twice a year on the effectiveness of previous policy decisions. They should explain whether, in retrospect, policy settings adopted 12 months earlier were too easy or too tight, even if only slightly so. They should clearly explain the metrics they used to make this determination. This form of accountability is especially important if NGDP targeting is not adopted, less so if it is.