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Fall 2019

ISSN 0890-915X

Volume 34, Number 3

Categories: Fall 2019 | Monetary policy

Expectations and NGDP Targeting: Supply-Side Problems with Demand-Side Policy

Alexander William Salter, Texas Tech University

Thomas L. Hogan, Rice University

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TheJournalofPrivateEnterprise34(3),2019,89–106ExpectationsandNGDPTargeting:Supply-SideProblemswithDemand-SidePolicyAlexanderWilliamSalterTexasTechUniversityThomasL.HoganRiceUniversity______________________________________________________AbstractThispaperconsiderstheeffectsofchangingexpectationsundermacroeconomicpoliciesthatrelyontargetingnominalvariables,suchasNGDPtargeting.Theseproposals,inlinewithadynamicconceptionoftheequationofexchange,arguethatthemonetaryauthoritycanachieveanydynamicmonetaryequilibrium,providedfavorablepublicexpectations.Theproblemofchangingpublicexpectations,however,cannotbeassumedaway.Becausethepublicmayonlyfindasubsetofdynamicmonetaryequilibriaattainable,attemptstocoordinatearoundanequilibriumperceivedtobeunobtainablecanhaveunintendedconsequences.WedemonstrateinaNewKeynesianmodelthatdemand-sidestabilizationpolicycanshiftinflationexpectations,resultinginsupply-sidedifficulties.Thisproblemservesasawarningagainstdemand-sidefundamentalisminmacroeconomicpolicy.______________________________________________________JELCodes:E32,E52,E58,E66Keywords:aggregatedemandstabilization,expectations,monetaryequilibrium,monetarypolicy,NGDPtargeting,stagflation,supplysideI.IntroductionTheaftermathoftheGreatRecessionhasrevivedthedebateovermacroeconomicstabilityandmonetarypolicy.Someeconomists,suchasJohnTaylor(2008,2014),believetheFederalReserve’smonetarypolicywastooexpansionaryduringthecrisis,whileothers,suchasScottSumner(2012a),believeitwasnotexpansionaryenough.TaylorandSumneragree,however,thatFedpolicywouldbeimprovedbyabandoningdiscretionandadoptingarules-basedmonetarypolicy.OnesuchproposalisthattheFedshouldtargetnominalincome(NGDP)ratherthaninflationandGDPgrowthseparately.Thegoalofstabilizingnominalincomewasrecommended

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Title	Expectations and NGDP Targeting: Supply-Side Problems with Demand-Side Policy
Authors/Creators:	Alexander William Salter, Texas Tech University Thomas L. Hogan, Rice University
Year:	2019
Volume:	34
Number:	3
Pages:	89 - 106
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-915X
Document Type:	Articles
Keywords:	aggregate demand stabilization, expectations, monetary equilibrium, monetary policy, NGDP targeting, stagflation, supply side

Citation:
Salter, Alexander William; Hogan, Thomas L. / 2019. "Expectations and NGDP Targeting: Supply-Side Problems with Demand-Side Policy." The Journal of Private Enterprise, 34(3): 89-106.