Carney suggest targetinhg GDP rather than inflation

grizzly1911

Carney suggests targeting nominal GDP rather than Inflation as a way to recover lost ground as interest rates are close to zero?

The Bank would have to adopt a more expansionary monetary policy – perhaps by increasing the size or scope of its quantitative easing programme – in order to boost the value of economic output


Firstly, ministers would have to be sure a much more activist monetary policy would actually do the trick. There are some economists who argue that central banks are running out of road

and there a risk the public would see a switch not as a fine-tuning of policy but as a desperate measure from policymakers intent on getting the economy moving at any cost.

http://www.guardian.co.uk/business/economics-blog/2012/dec/12/bank-england-mark-carney-inflation-targets

Good summary other news providers are available.

Desperate times or common sense?

MacMickster

Austerity alone isn't working and the national debt continues to grow.

Plan B. Add a significant dose of inflation to tackle the debt. Of course, as a consequence, interest rates will have to rise putting more pressure on squeezed homeowners.

Graham_Devon

Well, we now know why he got the job! Inflate that debt away!

ILW

Graham_Devon wrote: »

Well, we now know why he got the job! Inflate that debt away!

Will IRs follow is the question?

Wookster

MacMickster wrote: »

Austerity alone isn't working and the national debt continues to grow.

This is a very checkered view.

The government inherited a deficit of 11.5%, that has now fallen to about 7% (iirc) so arguably austerity IS working. It takes many years to reduce such a large deficit.

Generali

It's an absolutely terrible idea, albeit one that has come up many times over the past couple of years.

The reason? Inflation creates costs on an economy so by targeting nominal GDP you can get into a cycle where falling real GDP causes the Central Bank to try to push inflation up which depresses real GDP further and so the cycle continues.

This is really the Phillips Curve revisited, the idea that there is some choice to be made between inflation and unemployment. That's what my A Level Econ teacher described as trying to decide how many angels dance on the head of a pin.

CLAPTON

why it is that virtually no-one comments on the agreed policies of all major parties?

i.e. the fact tht BoE actually targets 2% inflation.

No-one's election manifesto says

"vote for us we will guarentee to reduce the value of your saving by at least 20% in 10 years... maybe much much more"


so no real change then

ILW

CLAPTON wrote: »

why it is that virtually no-one comments on the agreed policies of all major parties?

i.e. the fact tht BoE actually targets 2% inflation.

No-one election manifesto says

"vote for us we will guarentee to reduce the value of your saving by at least 20% in 10 years... maybe much much more"


so no real change then

For some reason they all seem to think that savers should be punished.

nollag2006

grizzly1911 wrote: »

Carney suggests targeting nominal GDP rather than Inflation as a way to recover lost ground as interest rates are close to zero?

The Bank would have to adopt a more expansionary monetary policy – perhaps by increasing the size or scope of its quantitative easing programme – in order to boost the value of economic output


Firstly, ministers would have to be sure a much more activist monetary policy would actually do the trick. There are some economists who argue that central banks are running out of road

and there a risk the public would see a switch not as a fine-tuning of policy but as a desperate measure from policymakers intent on getting the economy moving at any cost.

http://www.guardian.co.uk/business/economics-blog/2012/dec/12/bank-england-mark-carney-inflation-targets

Good summary other news providers are available.

Desperate times or common sense?

More funding available at low interest rates is exactly what we need.

Makes perfect sense, and is good news for house prices!

Thrugelmir

grizzly1911 wrote: »

Carney suggests targeting nominal GDP rather than Inflation as a way to recover lost ground as interest rates are close to zero?

Not what he suggested.

Mr Carney suggested that a nominal GDP target, where a central bank sets monetary policy based on both inflation and growth, would do more to boost economic output.

CLAPTON

he does actually have an tools that allow for him to target inflation and growth at the same time.

All he means is that he wishes to stop worrying about inflation and focus on growth.
Once growth has occurred he will then focus on inflation.

More a process of alternating targets.