Must-read: Nick Rowe: “It’s easier to have a sensible fiscal rule with an NGDP level-path target”

Must-Read: Nick Rowe: It’s easier to have a sensible fiscal rule with an NGDP level-path target: “Even if you are skeptical about the feasibility of a formal fiscal rule…

…it’s a useful thought-experiment to help us be conceptually clear about what we want fiscal policy to look like…. One thing we want… is sustainab[ility] in the long run…. whether we think fiscal policy is or is not needed to help monetary policy stabilise aggregate demand. A sensible fiscal rule would not let the debt/GDP ratio wander off over time towards plus infinity or minus infinity…. We are talking about a ratio of debt to nominal GDP…. A (say) 5% Nominal GDP level-path target… would make it a lot easier to write down a sensible fiscal rule…. If you don’t have an NGDP level-path target, nobody know what NGDP will be be over the coming decades. So nobody knows what average deficit would be sustainable…. Sure, an NGDP level-path target only fixes one problem with getting fiscal policy right. But every little bit helps.