4. Nominal GDP Distant from
Potential Levels
Current State of the Economy Restraints on Growth Policy Proposal
10%
5. Real Personal Consumption
Expenditures Are Steadily Increasing
Source: U.S. Department
of Commerce: Bureau of
Economic Analysis
Current State of the Economy Restraints on Growth Policy Proposal
6. Personal Savings Have Yet to
Reach Pre-recession Levels
Source: U.S.
Department of
Commerce: Bureau of
Economic Analysis
Current State of the Economy Restraints on Growth Policy Proposal
8. Household Debt Service
Payments Decreasing
Source: Board of
Governors of the
Federal Reserve
System
Current State of the Economy Restraints on Growth Policy Proposal
10. New Housing Units Started
Gradually Rising
Source: U.S.
Department
of Commerce:
Census
Bureau
Current State of the Economy Restraints on Growth Policy Proposal
17. Real Wages Still Recovering
Current State of the Economy Restraints on Growth Policy Proposal
18. Consumer Confidence Still
Below Pre-recession Levels
Thomson
Reuters/
University
of
Michigan
Current State of the Economy Restraints on Growth Policy Proposal
19. New Housing Sales Sluggishly Increasing
but Still Far Below Optimal Levels
Source: U.S.
Department
of Commerce:
Census
Bureau
Current State of the Economy Restraints on Growth Policy Proposal
22. Nominal GDP Targeting Complemented with
Large Scale Asset Purchases
Current State of the Economy Restraints on Growth Policy Proposal
23. Reasons for Nominal GDP
Targeting
• Most aggressive policy towards growth
• Nominal GDP target is distant from current
Nominal GDP
• Perpetual weakness in output and
employment increases risk of structural
issues
Current State of the Economy Restraints on Growth Policy Proposal
24. Fulfills Federal Reserve’s Dual
Employment Price Mandate
• Focuses on both employment/production and
inflation/price level
• Emphasis is given to employment and
production
Current State of the Economy Restraints on Growth Policy Proposal
25. Comparison of Nominal GDP
and Price Level Targeting
• Price level target marginally above current price
level
• Price level targeting is difficult to convey to public
• No decision required regarding which price level
index is targeted (CPI, PCE deflator, GDP deflator)
Current State of the Economy Restraints on Growth Policy Proposal
26. How Nominal GDP Targeting
Operates
• Reduces the real long term interest rates
– Higher inflation expectations and thereby lower
real interest rates.
– Delay in the onset of rate hikes
– Lower term premium
• Inducing investment
• Facilitate loan borrowing
Current State of the Economy Restraints on Growth Policy Proposal
27. Implementation
The main element that will help make this
effective is “credibility”
•Simplicity and transparency
•No reliance on measures of the output gap
•Commit to closing gap without designated
timeline
Current State of the Economy Restraints on Growth Policy Proposal
28. A Nominal GDP Level Target Could Lower Unemployment
Substantially
Current State of the Economy Restraints on Growth Policy Proposal
29. Conclusion
• Economy is sluggishly rebounding due to
restraints on growth and therefore further
action is necessary
• Nominal GDP targeting with large scale asset
purchases needs to be implemented
Current State of the Economy Restraints on Growth Policy Proposal
30. Close Nominal GDP Gap
Current State of the Economy Restraints on Growth Policy Proposal
10%
31. Outcome
• Credibility is key for successful implementation
• Higher growth ultimately closing the Nominal GDP
gap and propelling Nominal GDP growth to
previous trajectory
• Return unemployment to natural levels while
maintaining price stability
Current State of the Economy Restraints on Growth Policy Proposal
