Thursday, June 21, 2012

IT vs. NGDP (os)

Since 2007, which coincides with many important events, we have a lively debate on the appropriateness of inflation targeting as the leading policy strategy especially on behalf of the ECB (although, I think they never call it this way). One of the leading opponents on that issue is, with respect to our small university cosmos, amv. Therefore, I am happy to say that: Inflation targeting is dead, NGDP is (or at least could be) its legal successor. How come? Well, read Jeffrey Frankel on VOX on that issue where he first gives a short overview on the life of inflation targeting and reasons the dead with the inability to deal appropriate with asset bubbles and supply shocks, both posing no challenge to NGDP targeting. Some of us may say: I told you this all the time!