The other day Bruce Bartlett had a piece in the Financial Times that well illustrates the “Japan Syndrome”, where “JS” is a direct consequence of “inflation targeting” (IT):

In Samuel Beckett’s famous play, “Waiting for Godot,” two men wait endlessly for a man named Godot to arrive, but he never does. Today, economic policy is paralyzed by the expectation of inflation that never arrives and never will unless policy changes. Unfortunately, that means that growth will not arrive, either.

From Bernanke´s writings it seems that he firmly believes in the “overall stabilizing powers” of IT, although he never came out in favor of a single mandate (maybe because he believes that with IT the “maximum employment” part of the mandate would be “automatically” attained). This is Bernanke 12 years ago:

Adoption of inflation targeting by the Federal Reserve would bring several major advantages over the current, less structured approach. First, it would transform the commitment to price stability—which has served us so well under Mr. Greenspan and his predecessor, Paul Volcker—from a personal preference of the chairman into an official policy. By depersonalizing and institutionalizing the Greenspan policy approach, the Fed would increase the likelihood that future U.S. monetary policy will look like the 1980s and 1990s rather than the 1930s or the 1970s.

Note the irony. In trying to avoid the 1970s he was “presented” with the 1930s! And I think that was because he “misinterpreted” Greenspan´s policy approach. But that´s not surprising because Greenspan himself didn´t know exactly what his “policy approach” was, just that it “worked”!

The empirical evidence presented in the panels below “identifies” the policy approach that worked. The only time both inflation was low and stable and real growth was stable was during the period that NGDP growth was stable (along a level path). Although both Volcker and Greenspan are on record discussing NGDP targeting, I believe they did not consciously pursue the policy. It´s high time for that to happen.

For example, during the Bernanke years inflation has remained stable and low but the instability injected into NGDP growth by monetary policy resulted in high real growth instability, with terrible consequences for the overall real economy, in particular for employment/unemployment.