Is Nominal-Income Targeting Effective?
In “Monetary Regime Change” (June 11), David Beckworth and Ramesh Ponnuru suggest that the Federal Reserve should adopt a target for nominal-income growth of 5 percent per annum. An imperfect but informative medical analogy would be trying to cure cancer by making your target some magical increase in life expectancy.
The past three years have demonstrated the futility of the recommended approach, since nominal-income targeting has been the implicit objective of Federal Reserve policy. The authors state, correctly, that nominal-GDP growth has averaged 5 percent per annum over the past quarter-century. However, the high level of variation in