In a remarkable editorial, the Economist endorsed nominal GDP targeting. What is more, it is finally reporting on the zero lower bound accurately. Here are the key passages:
Endorsing NGDP Targeting as a Solution to Shifting Inflation Determination Relationships:
That is because the usual relationship between inflation and unemployment appears to have broken down. In the short run, economists think these two variables ought to move in opposite directions. High joblessness should weigh on prices; low unemployment ought to push inflation up, by raising wages.
Unfortunately, in many rich countries this standard inflation thermostat is on the blink. In 2008 economic growth collapsed and unemployment soared, but inflation only gradually sank below target. Now, by contrast, unemployment has fallen to remarkably low levels, but inflation remains anaemic. This has wrong-footed central banks.
… it makes sense to look beyond inflation—and to consider targeting nominal GDP (NGDP) instead.
… an NGDP target would free central banks from the confusion caused by the broken inflation gauge. To set policy today central banks must work out how they think inflation will respond to falling unemployment, and markets must guess at their thinking. An NGDP target would not require the distinction between forecasts for growth (and hence employment) and forecasts for inflation.
Mentioning the Zero Lower Bound in a Way that Indicates It Is a Policy Choice, Not a Law of Nature:
Interest rates cannot be cut far below zero without radical changes in the nature of money (the Bank of England’s chief economist recently suggested eliminating cash).