Scott Sumner  

Grossman on NGDP shocks as policy indicators

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I'm starting to clean out my office at Bentley, and throw away lots of old journals. (I dread having to soon throw away lots of my old economics books---I'm of the generation that values things more than experiences.)

I came across a Journal of Political Economy article by Jacob Grossman, from 1979. Here's the abstract:

The hypothesis that only the unanticipated part of the policy instruments and their lagged values affect unemployment, while the anticipated part affects the inflation rate, is tested for the U.S. postwar period. Nominal GNP is used as a proxy for the policy instruments. The hypothesis receives strong support from some empirical tests. The results explain the breakdown of nominal income changes into prices and output and bring out the "trickery" aspect of nominal demand management.
That made me smile. It seems that market monetarists did not invent the idea of using NGDP shocks as a proxy for monetary policy shocks. I'm also pleased that he found these shocks affect the economy in exactly the way we'd expect:
Over the sample period, unanticipated nominal income growth turns out to have a significant persistent negative effect on unemployment, and anticipated income growth turns out to have a significant positive effect on the inflation rate.
Note that NGDP shocks are much better than inflation shocks (as AD proxies) during periods like the 1970s, when there were lots of supply shocks.

The same issue has a great article by Robert Barro on the optimal path of the public debt. I was in grad school at the time, and still look back on the 1970s at the University of Chicago as the golden age of economics. But that's probably just nostalgia.


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COMMENTS (5 to date)
John Hall writes:

Why throw them away when you can donate them to a library?

Jack PQ writes:

Throw away textbooks? Why not give them to your favorite economics PhD program graduate students? I'm sure they will gladly have them. And if they turn around and sell them on ebay, good for them too!

Scott Sumners writes:

John and Jack, Anyone who wants this stuff should email me, and set up a time to visit my office.

Benjamin Cole writes:

Throwing out old books--and the libraries won't even take them anymore.

At one point in my L.A. days I moved into an Airstream trailer. No room for books, Was planning to move offshore anyway in a few years, so out with the books. And this stuff is not online!

Somewhere in that treasury was a book by a well-known economist who hinted at printing money to run the federal budget, in part. In the 1970s! That took guts!

Now, lost to the world.

I do not look back on UC Berkeley (I am a 1955 model also) as a golden age of economics. I was just trying to pass the classes!

Jose Romeu Robazzi writes:

It is amazing how much relevante research gets ignored by the mainstream. This makes me think that not only markets show a herd behavior...

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