With respect to Charles Calomiris's claim that it is inappropriate for the Federal Reserve to aim for a short-term nominal GDP growth rate above 5% per year no matter how high the unemployment rate...
David Beckworth writes:
Macro and Other Market Musings: A Defection from the "Open Letter to Bernanke": Over at FrumForum, Noah Kristula-Green gets some of the Open Letter to Ben Bernanke signers to discuss their motivations for doing so. One of the signers, Charles W. Calomiris, looks like he does not belong on that letter:
There are many reasonable alternative views on how to target monetary policy. I favor Ben McCallum’s proposal to target nominal GDP growth at about 5%. Since we were on track with that target before QE II, at least for the moment, I would neither be raising or lowering interest rates....
If Calomiris believes in level targeting rather than growth rate targeting he definitely does not belong on that letter. Below is a figure showing the level of nominal GDP, its trend, and its forecast through the end of 2011. (Click on figure to enlarge.) The gap between actual and trend nominal GDP in this figure is troubling, but more so is the fact that it is projected to grow over the next year. And yet folks are upset overQE2! Nominal GDP is nothing more than total current dollar spending. This is something the Fed can and should stabilize. That real problem with the Federal Reserve is not that its doing QE2, but that it is failed to stabilize nominal spending in the first place.
But David has the wrong title. Charlie is not a defector from the anti-Bernanke letter. He signed the thing--and he clearly believes not in level-of-nominal-GDP targeting or in a mix but in growth-rate-of-nominal-GDP targeting alone.
God knows why anybody would ever believe that. But he does.