Switch the government's inflation target to a nominal GDP level target.

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Switch the government's inflation target to a nominal GDP level target.

Petition Details

Currently, the BoE's mandate for monetary stability focuses around meeting an inflation target of 2% required by the government. There is growing support within the economics profession that a nominal GDP (or 'nominal income') level target would provide greater macroeconomic stability.

Additional Information

There is significant evidence for the theory that inadequate monetary policy leads to recessions; a nominal income target would help smooth out the cycle by maintaining aggregate demand (or, total spending/income in the economy).

Explicitly trying to maintain aggregate demand would improve both the efficacy and transparency of monetary policy in dealing with both nominal and real shocks in the short-run, while targeting the level of nominal GDP would improve confidence in the long-run.

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