Understanding Nominal GNP Targeting

FIROUGHOUT 1989, popular wisdom held that the U.S. monetary authority was faced with a daunting policy task: it should not permit too much money growth and cause prices to rise too rapidly, but it should not allow too little money growth and cause the economy to tip into recession as real output would fall. Sympathy for monetary policymakers, however, is not necessarily widespread among economists. Many economists deny that the tradeoff between inflation and output growth exists in the long run. Moreover, even those who grudgingly agree that the tradeoff may exist in the short run contend that monetary policymakers create problems for themselves by attempting to exploit the possible output-inflation tradeoff.