In the wake of the financial panic and economic recession of 2008, numerous macroeconomic policies are being re-evaluated. Some economists argue that the crisis demonstrates a need to move away from Ben Bernanke-type discretionary monetary policy and instead adopt some monetary policy rule. One such proposed rule is nominal GDP (NGDP) targeting, made popular by a set of economists that have been given the moniker “market monetarists.”
Market monetarism is largely a blogosphere phenomenon, with the most prominent blogs amongst the group being Scott Sumner’s The Money Illusion, Lars Christensen’s The Market Monetarist, and David Beckworth’s Macro and other Market Musings.
The most well-known of the group, Scott Sumner (2012; 2011),
has authored two scholarly works that outline his vision for monetary
policy, and Christensen (2011) has authored a working paper summarizing
the work of
But market monetarism and NGDP targeting have started to break through
into the mainstream media, think tank, and policy worlds as well.
Cowen dubbed the day that the Federal Reserve announced QE3 as “ Scott Sumner Day,” partially
crediting the influence of Sumner’s blogging for the Fed’s expansionary move. CNBC pundit Larry Kudlow
has warmed to NGDP targeting, and
thereby changed his previously critical tune on Bernanke. James
Pethokoukis, a columnist for the hugely influential American Enterprise
Institute, has been
using market monetarism to try to convince the GOP to learn to stop worrying and love the helicopter.
Unfortunately, despite market monetarism’s recent popularity, nominal
GDP targeting fails to achieve the end of aiding macroeconomic
monetarist theory and policy is unsatisfactory primarily because Market
monetarists use a faulty theoretical framework in analyzing economic
misunderstand how expectations enter into economic decision making, and
they do not recognize the actual consequences of the monetary policy
stabilize NGDP expectations.
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