Can NGDP Targeting be Too Loose?

27 Pages Posted: 9 Jan 2015 Last revised: 23 Jun 2015

See all articles by Nicolas Cachanosky

Nicolas Cachanosky

The University of Texas at El Paso; American Institute for Economic Research; UCEMA Friedman-Hayek Center for the Study of a Free Society

Date Written: June 22, 2015


This paper examines whether the "market monetarism" prescribing a 5% yearly NGDP growth rate was too much between the dot-com and the subprime mortgage crises. To do this I search for evidences of monetary disequilibrium in other variables such as trend deviations, the behavior of intermediate prices, and interest rates. I find evidences that suggest that the 5% growth of NGDP in the years prior to the crisis might have been excessive. Although this observation does not question the principle behind NGDP targeting, it suggests that the target should be carefully chosen. This result is also consistent with the interpretation that monetary policy was too loose for too long from 2002 to 2007 following other indicators such as the Taylor Rule.

Keywords: nominal income, NGDP Targeting, productivity norm, monetary policy

JEL Classification: E32, E52

Suggested Citation

Cachanosky, Nicolas, Can NGDP Targeting be Too Loose? (June 22, 2015). Available at SSRN: or

Nicolas Cachanosky (Contact Author)

The University of Texas at El Paso

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UCEMA Friedman-Hayek Center for the Study of a Free Society ( email )

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