The Telegraph, August 28, Roger Bootle
With inflation surging to new heights, the search for a scapegoat is well under way. Questions are now being asked about the monetary policy regime itself: that is to say, targeting the inflation rate. It is perfectly reasonable to be asking searching questions about the established policy regime. But would it be wise to reject inflation targeting?
A possible alternative as a target is Money (i.e. nominal) GDP. This is superficially very plausible. Money GDP is an amalgam of the quantity of output and the general price level. Targeting this measure makes some sense because interest rates and other policy levers have a bearing on overall money expenditure, rather than directly on inflation itself.
Nevertheless, a Money GDP target would suffer from some serious problems. At present, Money GDP data is only published quarterly and even then with a considerable delay. I suspect it would be possible to publish monthly data, but I doubt whether this could be done with as little delay as the CPI inflation data. And publishing such data more frequently and more quickly would almost certainly intensify a second problem with Money GDP – the data is often revised, sometimes by a considerable amount. By contrast, the CPI data is never revised.
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