Neo-Fisherism converges on market monetarism
By Scott Sumner
Here’s the latest from John Cochrane:
To send you off with some more Thanksgiving good cheer, here is another out of the box Neo-Fisherian idea.
Perhaps the Fed (or the Treasury) should target the spread between real and nominal interest rates.
. . .
Now, the usual Neo-Fisherian idea says, peg the nominal rate (i), eventually the real rate (r) will settle down, and inflation will follow the nominal rate. It’s contentious, among other reasons, because we’re not quite sure how long it takes the real rate to settle down, and there is some fear that real rate movements induce a temporarily opposite move in inflation.
So why not target the spread? The Fed or Treasury could easily say that the yield difference between TIPS and Treasuries shall be 2%.
Excellent. And so Neo-Fisherism has now arrived where David Glasner, Bill Woolsey, Bob Hetzel, Milton Friedman and I were a few decades back. Target the market forecast. On to NGDP futures targeting?
HT: Dlr, Vaidas Urba, Michael Byrnes