David Beckworth directed me to a presentation by Steve Ambler, recommending a policy of NGDPLT. (It was a part of the Bank of Canada’s 5-year review.) Ambler did an excellent job, and one highlight for me was his mention of the Mercatus-funded NGDP futures market:
The first discussant was Nick Rowe, who is one of the very few economists I would pay to go listen to. Nick has convinced me that monetary policy is 1% current concrete steps and 99% signaling about the expected future path of policy. He did a very nice job explaining how current spending depends on futures expected monetary policy, which is why we need a regime that stabilizes future expected spending (NGDP). I like how Nick used the “automatic stabilizers” concept, an idea more commonly linked to fiscal policy.
The economy would be doing a bit better right now if the public could be convinced that NGDP at the end of 2021 would be about 8% higher than NGDP at the end of 2019.
Inflation targeting doesn’t do as well, as inflation is less closely correlated with things we actually care about, such as output gaps.