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Author: Richard Dennis
Publisher:
ISBN:
Category : Gross domestic product
Languages : en
Pages : 42
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Author: Richard Dennis
Publisher:
ISBN:
Category : Gross domestic product
Languages : en
Pages : 42
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Book Description
Author: Scott Sumner
Publisher: University of Chicago Press
ISBN: 0226826562
Category : Business & Economics
Languages : en
Pages : 415
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Book Description
The first book-length work on market monetarism, written by its leading scholar. Is it possible that the consensus around what caused the 2008 Great Recession is almost entirely wrong? It’s happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to our understanding of the first economic crisis of the 21st century. Foregoing the usual relitigating of problems such as housing markets and banking crises, renowned monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. The Money Illusion is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays the groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: providing a stable environment for a market economy to flourish.
Author: Scott Sumner
Publisher:
ISBN:
Category :
Languages : en
Pages : 17
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Book Description
Monetary policy is important for two key reasons. First, monetary policy determines the path of the price level, and it heavily influences other variables like nominal wages and nominal GDP. As seen in the 1970s, high inflation can be damaging to the health of the economy and to the well-being of individual citizens. Savers are punished, and resources are diverted from productive investments into inflation hedges such as gold. Second, monetary policy plays a big role in the business cycle. As demonstrated by the Great Depression, and to a lesser extent the global recession of 2008-2009, unstable monetary policy can lead to high unemployment and financial turmoil. Unpredictable monetary policy is especially harmful. The great amount of attention devoted to the Federal Reserve and its actions indicates that the current system is not as predictable as the market would like. A different monetary policy system could enhance predictability and ensure sound money.This primer will present one such system: nominal gross domestic product (NGDP) level targeting. The first section will clearly define monetary policy, describe the two main methods that central banks have traditionally used to carry out policy, and analyze the weaknesses of these methods. Later sections will articulate what NGDP is and how a policy of NGDP targeting works. Subsequent sections will list the most common criticisms of NGDP targeting and explain why these criticisms are misguided, and they will present arguments in support of the policy. Finally, the primer will provide specific recommendations for how to move from the current system to a system based on NGDP futures targeting.
Author: Pranjul Bhandari
Publisher:
ISBN:
Category : Economic stabilization
Languages : en
Pages : 31
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Book Description
The revival of interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. We consider the case for NGDP targeting for mid-sized developing countries, in light of their susceptibility to supply shocks and terms of trade shocks. For India, in particular, one major exogenous supply shock is the monsoon rains. NGDP targeting splits the impact of supply shocks automatically between inflation and real GDP growth. In the case of annual inflation targeting (IT), by contrast, the full impact of an adverse supply shock or terms of trade shock is felt as a loss in real GDP alone. NGDP targeting automatically accommodates supply shocks as most central banks with discretion would do anyway, while retaining the advantage of anchoring expectations as rules are designed to do. We outline a simple theoretical model and derive the condition under which an NGDP targeting regime would dominate other regimes such as annual IT for achieving objectives of output and price stability. We go on to estimate for the case of India the parameters needed to ascertain whether the condition holds, particularly the slope of the aggregate supply curve. Estimates suggest that the condition may indeed hold.
Author: Anastasios G. E. T. Al MALLIARIS
Publisher: World Scientific
ISBN: 9814566926
Category : Business & Economics
Languages : en
Pages : 844
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Book Description
"The World Scientific Handbook of Futures Markets serves as a definitive source for comprehensive and accessible information in futures markets. The emphasis is on the unique characteristics of futures markets that make them worthy of a special volume. In our judgment, futures markets are currently undergoing remarkable changes as trading is shifting from open outcry to electronic and as the traditional functions of hedging and speculation are extended to include futures as an alternative investment vehicle in traditional portfolios. The unique feature of this volume is the selection of five classic papers that lay the foundations of the futures markets and the invitation to the leading academics who do work in the area to write critical surveys in a dozen important topics."--$cProvided by publisher.
Author: Moon Oulatta
Publisher:
ISBN: 9780355913453
Category : Economics
Languages : en
Pages : 143
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Book Description
This dissertation investigates the prospect of adopting a flexible exchange rate regime with the nominal gross domestic product (GDP) as the intermediate target for the conduct of monetary policy for the members of the West African Economic and Monetary Union (WAEMU). In the first chapter, we begin by assessing the choice of exchange rate regime based on three criteria: exchange rate volatility, exposure to real shocks, and institutional capacities. The current peg with the euro remains the de facto political choice for the WAEMU, but also a reliable option for ensuring monetary policy discipline and allaying risks of currency convertibility. However, we argue that exchange rate flexibility is increasingly becoming more viable due to the overall improvement in the central bank's operational and statistical capacities, the high degree of exposure to terms of trade shocks, and the recent change in the WAEMU's trade patterns away from Europe. Therefore, given the case for exchange rate flexibility, we examine the pros and cons of three types of flexible exchange rate regime: inflation targeting, monetary aggregate targeting, and nominal GDP targeting. The main conclusion is that while all three types of flexible exchange rate regime would provide a firm commitment to a nominal anchor, monetary aggregate targeting would be the most practical option to pursue, because monetary aggregate data are highly observable, prone to almost no revisions, and price stability would be guaranteed by preventing excessive money growth. Alternatively, given the poor growth performance realized in the last decade and increasing vulnerability to supply shocks (for example, falling commodity prices and drastic droughts), we argue that under the right circumstances (for example, when the economy is operating far below potential output), choosing a flexible exchange rate regime that allows monetary authorities to prioritize both employment and price stability such as nominal GDP targeting would be most desirable as compared to adopting a flexible exchange rate regime in which the intermediate target of monetary policy is to keep a monetary aggregate or the inflation rate on target. A commitment to stabilize nominal GDP would force the monetary authorities to prioritize employment in the short run without giving up on achieving price stability in the long run. In the second chapter, we examine the stabilizing properties of using nominal GDP as the intermediate target as compared to using the inflation rate, a monetary aggregate, or the exchange rate. We provide a contribution to Bhandari and Frankel's (2015) model by imposing a cost for data uncertainty into the central bank quadratic loss functions, especially under inflation targeting and nominal GDP targeting. First, we show that no precommitment to a nominal anchor leads to a suboptimal outcome. Then, we derive the optimal conditions to determine whether a precommitment to a nominal GDP target would minimize the variability of real output, inflation, and the nominal exchange rate more efficiently than a precommitment to an inflation target, a monetary aggregate target, or an exchange rate target. We draw three main conclusions from the result of the simulations. First, the exchange rate is the least optimal among the choices of nominal anchors considered for the WAEMU. Second, nominal GDP targeting minimizes the central bank's quadratic loss function in an open economy setting given some parameter values for nominal GDP data uncertainty. Third, monetary aggregate targeting is slightly more robust than inflation targeting and exchange rate targeting. In conclusion, the main policy recommendation is that the central bank should prioritize nominal GDP among the choices of nominal anchors. However, in the event of large nominal GDP data revisions or poor data quality, then the secondary option should be to commit to a monetary aggregate target. In the third chapter, we devise a strategy for implementing nominal GDP targeting for the WAEMU by taking into consideration the existing practical concerns of data revisions and the unavailability of quarterly estimates of aggregate nominal GDP. Given the macroeconomic structure of the WAEMU and the magnitude of the estimated shocks affecting the economy, we demonstrate that a monetary aggregate instrument is superior to an interest rate instrument for the WAEMU. Hence, we propose a money-based rule similar to McCallum's (1987) rule, where the central bank is to announce an annual target for nominal GDP growth and use the monetary base as the operational target. Given the discovery of a robust empirical link between aggregate nominal GDP and aggregate nominal trade (value of exports plus imports) and the availability of trade data on a high frequency with minor revisions, we propose to rely on quarterly estimates of nominal trade as a means to solve the existing data issues coming from large revisions and low frequency data. (Abstract shortened by ProQuest.).
Author: David Beckworth
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
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Book Description
Some economists have advocated nominal GDP targeting as an alternative to the Taylor Rule. These arguments are largely based on the idea that nominal GDP targeting would require less knowledge on the part of policymakers than a traditional Taylor Rule. In particular, a nominal GDP targeting rule would not require real-time knowledge of the output gap. We examine the importance of this claim by amending a standard New Keynesian model to assume that the central bank has imperfect information about the output gap and therefore must forecast the output gap based on previous information. Forecast errors by the central bank can then potentially induce unanticipated changes in the short term nominal interest rate, distinct from a standard monetary policy shock. We show that forecast errors of the output gap by the Federal Reserve can account for up to 13% of the fluctuations in the output gap. In addition, our simulations imply that a nominal GDP targeting rule would produce lower volatility in both inflation and the output gap in comparison with the Taylor Rule under imperfect information.
Author: Michael T. Belongia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: George Selgin
Publisher: Createspace Independent Publishing Platform
ISBN: 9781495294280
Category : Business & Economics
Languages : en
Pages : 82
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Book Description
LARGE PRINT EDITION! More at LargePrintLiberty.com. This book sets out to explain the complexity of why increased production does not that always bring with it lower prices. According to the book, those who look upon monetary expansion as a way to eradicate almost all unemployment fail to appreciate that persistent unemployment is a non-monetary or 'natural' economic condition, which no mount of monetary medicine can cure. Selgin explores the differences between these monetary and natural conditions, and proposes solutions of his own.
Author: Martin S. Feldstein
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 90
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Book Description
This paper studies the possibility of using the broad monetary aggregate M2 to target the quarterly rate of growth of nominal GDP. Our findings indicate that the Federal Reserve could probably guide M2 in a way that reduces not only the long-term average rate of inflation but also the variance of the annual rate of growth of nominal GDP. An optimal M2 rule, derived from a simple VAR, reduces the mean ten-year standard deviation of annual GDP growth by over 20 percent. Although there is uncertainty about this value because of both parameter uncertainty and stochastic shocks to the economy, we estimate that the probability that the annual variance would be reduced over a ten year period exceeds 85 percent. A much simpler policy based on a single equation linking M2 and GDP is shown to be almost as successful in reducing this annual GDP variance. Additional statistical tests indicate that M2 is a useful predictor of nominal GDP. Moreover, a battery of recently developed tests for parameter stability fails to reject the hypothesis that the M2 - GDP link is stable, but the MI - GDP and monetary base - GDP relations are found to be highly unstable. This evidence contradicts those who have argued that the M2 - GDP relation is so unstable in the short run that it cannot be used to reduce the variance of nominal GDP growth.
