The Fed should have abandoned inflation targeting

Ben Bernanke's book is officially out and available. The Economist's full review will be published later this week (it's a big book). But debate about the book's arguments is already unfolding, and I can't resist joining in.

Two weeks ago, The Economist repeated its endorsement of a change in the Fed's monetary policy target, from an inflation rate to a growth rate for nominal GDP (NGDP): or total spending and income in an economy in dollar terms. In November of 2011, during Mr Bernanke's chairmanship of the Fed, the monetary-policy committee considered a change to an NGDP target, but opted to stay with the old, inflation-focused framework. Mr Bernanke writes:

"For nominal GDP targeting to work, it had to be credible. That is, people would have to be convinced that the Fed, after spending most of the 1980s and 1990s trying to quash inflation, had suddenly decided it was willing to tolerate higher inflation, possibly for many years."

The Economist

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