So, support for NGDP targeting finally seems to grow. It wouldn’t solve the basic problem that we (the Western world) suffer from too much regulation, a stricken financial system, and too much debt. So I wouldn’t bet on NGDP targeting increasing long-term growth or lowering long-term unemployment rates much. But it could surely help us get out quicker of this 2008-11 downturn mess. We would return to long-term growth trends faster, which, of course, would mean higher growth for a short period of time. Most of all, it would increase confidence in our monetary systems and lighten the burden of our debt mountain.
That’s does not mean that I would prefer to inflate away old debt. It just means that, if society made agreements on debt contracts before 2008 with inflation expectations at roughly 2-3%, then we ought to keep inflation in that range. I’d prefer a price-level target, as I don’t think that there is an ethical need for central banks to compensate debtors with higher inflation when they got their growth expectations wrong. But any level target would be better than what we have now: Central banks that are so scared from potential inflation that they let inflation slowly drift downwards to Japanese level, thus favouring creditors over debtors.