Haitao Zhang’s macro stabilization proposal
I first “met” Haitao Zhang seven or eight ago, when we were both frequent commenters at Brad Setser’s remarkable blog. After I wrote about NGDP targeting, Zhang forwarded to me a paper he composed and sent around several years ago. He has graciously given me permission to republish it.
It’s an interesting piece, in the spirit of a several proposals (Abbott, Parameswaran, TradersCrucible, me) that try to combine the benefits of fiscal policy with the institutional agility and rule-orientation associated with monetary policy. Zhang’s proposal is a particularly creative and ambitious contribution.
From the abstract:
In this essay I propose that the central bank be freed from its role of using interest rate policy to support aggregate demand. Instead, a truly variable public spending program is suggested to regulate aggregate demand. The program should be running constantly in order to minimize the time delay of fiscal responses. The amount of spending is variable and can be automatically computed from the realized nominal GDP so as to target a fixed growth rate for the nominal GDP. In order to gain popular support and avoid the pitfalls of traditional Keynesian stimulus programs, I propose that an electronic national market be set up to give voters direct control over where such stimulus spending is applied.
P.S. Scott Sumner, the Timothy Leary of NGDP targeting, seems to have endorsed the Abbott paper. If so, there is a lot less daylight than I thought between his views and my own. Which is a shame — he’s fun to argue with!
- 2-Feb-2012, 7:00 p.m. EST: Added TradersCrucible’s TC rule to the list of rule-oriented fiscal policy proposals.