The Institute of Economic Affairs proposes that nominal GDP (NGDP) targeting is a more effective monetary policy than inflation targeting. Authored by economist Damian Pudner, the paper asserts that NGDP targeting leads to greater economic stability by prioritizing total nominal spending. The recommendation includes adopting a NGDP framework, enhancing communication about this shift, and creating a NGDP futures market to guide policymakers. The paper stresses the necessity of adapting monetary policies to fit current economic circumstances to bolster growth and minimize uncertainty.
Nominal GDP targeting may provide a more stable and predictable macroeconomic environment by shifting focus from inflation to total nominal spending.
Transitioning to NGDP targeting can minimize discretionary decision-making, providing clearer expectations for businesses and improving overall economic transparency.
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