Home > Main > Is the U.K. targeting 5% Nominal GDP growth – and should we panic?

Is the U.K. targeting 5% Nominal GDP growth – and should we panic?

February 15, 2011

According to David Beckworth, it is.

Nominal GDP targets are a hot topic in the economics world.  Some people think it is the holy grail, because it creates a simple, easy to understand rule that kinda sorta keeps the economy growing in a recession, and keeps a lid on inflation if there is lots of growth.

According to Beckworth, the U.K. is the home of inflation targeting, and enough people that support this rule are or were in the apparatus of the Central Bank that it makes sense to think they might be targeting 5% NGDP.

The chart the Beckworth shows is worth all the debate in the world.  That’s an very, very straight line.  5% NGDP seems to be the target for the U.K.  Note that with negative Real GDP, inflation can be higher than 5%!

So should we panic that the U.K. has a 4% inflation print?  I don’t think we should.  That line is very, very straight, with one deflationary kink. There are no inflationary kinks.  It appears that even over long periods of time the Central bank was really, really good at hitting 5.3% NGDP.

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