As I suspected, Sumner’s advocacy should probably be focused on level targeting, as opposed to NGDP targeting. Most important of all is to set a ‘backdated’ level so that we can get back to the trend we were knocked from when this recession started.
I imagine this would involve an immense expansion of the money supply, something an order of magnitude larger than what we’ve already seen.
See his response to my question on his blog:
If the Fed were to do 5% NGDP targeting right now, it wouldn’t help very much. If they did 5% NGDP level targeting from right now, it would help a little more.
If they did 5% NGDP targeting backdated to 2009, we’d get an explosive recovery, actually too fast.
I’d recommend aiming for 6% or 7& for a couple years, then 5% thereafter.
If the Fed did price level targeting from right now it wouldn’t help much. If they backdated it to level targeting from 2008 it would help more, but not as much as NGDP level targeting.
An explicit 2% inflation target (not level targeting) would be the weakest of all, as it’s not much different from what they have been doing.
If they go to level targeting of any sort, futures targeting doesn’t add much.