Monday, January 7, 2013

Interview with Michael Woodford

If you recall from this post, Michael Woodford is one of the most important active monetary economists.  Bloomberg conducts a recent interview.  Here are some highlights:

Q: What was the thought process that led you to support nominal GDP targeting?

A: Actually, it's an approach I've been advocating for at least a decade, though in my earlier writing about this I referred to a more technical variant of the proposal (what I called an "output-gap-adjusted price-level target") rather than to nominal GDP targeting. The idea is to have a target criterion with two qualities: It must focus on the level of a nominal variable rather than its growth rate, and it should involve some combination of prices and economic activity...I see it more as a refinement than as a move away from inflation targeting.
Q: To what extent have the Fed's latest moves -- stating the levels of unemployment and inflation at which it would consider raising rates -- brought its policy closer to what you propose?
A: They have moved closer in one important respect: They are now talking about future policy in terms of economic outcomes, rather than a calendar date that will determine when interest rates should begin to rise. And it has some flavor of nominal GDP targeting because it involves both inflation and the real economy. The problem is that it's not clear what the new policy means for the longer term...  A nominal GDP target would explain why they're doing what they're doing now, and also how they would shift to a less accommodative regime in the future, once the "catch up" to the target path has occurred.

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