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Tuesday, September 03, 2013

'U.S. Price-Level Dynamics'

David Andolfatto wants you to explain why he's wrong about NGDP targeting (this is part of a much longer post):

...let's take a look at the (log) PCE from 1990 onward, together with linear trend:
The PCE inflation rate since 1990 averaged 2.09% per annum.
What's interesting about this diagram is that even though the Fed does not officially target the PCE price level, the data above suggests that the Fed is behaving as if it does.
As a price-level (PL) target is equivalent to a nominal GDP (NGDP) target in a wide class of macroeconomic models (especially under the assumption of constant productivity growth), then what more does the NGDP crowd expect from an official NGDP target? Seems to me that they are just asking for more price inflation and wishfully hoping that some of the subsequent rise in NGDP will take the form of real income.
Tell me I'm wrong (and why).

    Posted by on Tuesday, September 3, 2013 at 04:03 PM in Economics, Inflation, Monetary Policy | Permalink  Comments (21)


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