It’s Time to Target Nominal GDP
After years of persistently low inflation, tepid growth, and rising inequality, central banks can no longer justify a monetary-policy regime that targets price stability. To strengthen the post-pandemic recovery, they must shift gears, by adopting a policy objective that actually has some bearing on the real economy.
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LONDON – Ever since Western central banks started targeting inflation in the early 1990s, some economic analysts – not least Samuel Brittan of the Financial Times – have been pointing out that it would be better to target nominal GDP. As the numerical value of all output or expenditure in an economy, nominal GDP combines a country’s real economic output with its associated prices or costs.