There’s some recent speculation that the new British leader might opt for NGDP targeting:

Andrew Bailey would be told to abandon the Bank of England’s 2pc inflation target under a radical plan to reform its mandate and boost the economy.

Mr Bailey, the Bank’s Governor, may be ordered to target nominal GDP in future – the size of the economy in cash terms – instead of seeking to keep inflation at 2pc, under plans being floated by allies of the Tory leadership frontrunner Liz Truss.

That might be good news, but as always the devil is in the details. I’ve always said that 90% of the benefit of shifting to NGDPLT comes from the level targeting part of the policy regime, and 10% comes from the NGDP part. Thus it is essential, and I mean essential, that any NGDP targeting regime involve level targeting.

For instance, NGDP growth rate targeting might not have prevented the Great Recession, whereas NGDPLT would have turned the Great Recession into (at most) a brief and very mild recession. Level targeting is that important.

If anyone listening out there has the ear of the new UK government, I implore you to emphasize the importance of the level targeting part of the NGDPLT regime.

Nonetheless, even a move to NGDP growth rate targeting could be considered good news, if it means were are gradually moving toward the ultimate goal of NGDPLT.

More By This Author: