Some economists push Fed to target nominal GDP

WASHINGTON, October 20, 2011 (AFP) – Frustrated by the moribund US recovery, a growing number of economists are pushing the Federal Reserve to adopt an explicit growth target, the most radical shift in central bank strategy in decades. In the world of economics an insurgency is raging amid worries that the Fed’s multi-trillion-dollar efforts to resuscitate the American economy have fallen short, and that the bank has little gas left in the tank.

One-by-one, prominent US economists are throwing their weight behind a radical idea known as “nominal gross domestic product targeting.” Like many economic terms the title’s dullness is inversely proportionate to its potential impact.

The specifics are complex, but it means targeting growth levels — expressed in current dollar terms — and would make the Fed more tolerant of broad swings in inflation, at least in the short term.

“It would be a very significant shift,” explained Bennett McCallum, a professor of economics at Carnegie Mellon University’s Tepper School of Business.

“The Federal Reserve has to have some idea about what its strategy is going to be, and the one that has been most popular for 20 years has been called inflation targeting — always trying to keep the