OVER a decade ago a frustrated Ben Bernanke, then an economics professor at Princeton University, called for Japanese central bankers to show some “Rooseveltian resolve” and to act more boldly as total nominal demand in Japan was “growing too slowly for the patient's health”. He might have been delivering a stern advance warning to himself in his current job as head of America's Federal Reserve. Judged by its record on inflation, the usual yardstick, the Fed is performing fairly well. But judged by the criterion Mr Bernanke had used for the Japanese economy in the late 1990s, something has gone badly wrong. America's nominal gross domestic product—GDP before adjusting for inflation—collapsed during the recession and is now nearly 12% below where it would be if its pre-recession trend had continued.

The slump in nominal GDP has had pernicious effects. It has raised both public and private debt burdens, since the ability of households, firms and governments to service their debt depends upon their nominal incomes and revenues. The gap between the performance of inflation and that of nominal GDP is so big that some economists, such as Scott Sumner of Bentley University, are dusting off an old idea. They are calling for central bankers to switch targets. Rather than directing monetary policy to hit inflation targets (as they have done for the past 20 years) central bankers should take aim at nominal GDP (or NGDP).

To adopt NGDP targeting, central bankers would set or be given a goal for how fast it should grow, most likely an annual rate of 4-5%. That corresponds in most rich countries to inflation around the 2% target now generally preferred and long-term potential growth of 2-3%. Monetary policy would then react as it does now, easing when NGDP growth was expected to be too sluggish and tightening when it was expected to be too exuberant. If nominal GDP fell below the target growth rate in one year, central banks would seek to make up for that in subsequent years—in effect, following a path for overall nominal spending. The division between inflation and real growth would vary from year to year.

A central bank's tools would be the same: adjusting short-term interest rates in normal times and reaching for unconventional implements such as quantitative easing—buying assets by creating money—when interest rates are, as now, close to zero. The difference lies in what signals the new target would send. At present a central bank targeting nominal GDP would be loosening policy much more aggressively. Mr Sumner reckons that the commitment to hit an NGDP target would itself boost the economy; but if it didn't, the Fed would presumably have to do even more quantitative easing until the target was hit.

Advocates of nominal GDP targeting claim that it would achieve greater macroeconomic stability. When recession hits, real output falls but prices tend to adjust more slowly. This means that by targeting nominal GDP, central banks could actually smooth output fluctuations better. They could also react more appropriately to supply shocks. Take the example of an economy that is hit by a negative supply shock through high oil prices depressing output and raising inflation. An inflation-targeting central bank may feel compelled to tighten policy, worsening the slump in output, whereas one mandated to hit NGDP could be more flexible. There could be advantages, too, in the opposite case where a positive supply shock through productivity-enhancing new technology boosts real GDP growth while lowering inflation. An inflation-targeting central bank would respond by easing monetary policy, which could produce asset bubbles, whereas an NGDP-targeting central bank would hold steady. Certainly inflation would be more volatile, but the overall economy would not be.

For those reared on price stability as a guiding principle of economic policy (and those who recall the turbulent 1970s when inflation lurched out of control), a regime that permits higher inflation from time to time may be hard to stomach. Yet the target for NGDP growth would still put a lid on inflation and thus prevent it from careering out of control. And lifting NGDP growth should move the economy closer to its real potential and reduce unemployment, as well as any additional inflation it might generate. Some observers suspect that the Bank of England has covertly been targeting nominal income of late, pointing to its tolerance of inflation running consistently above target and the relative stability of Britain's nominal GDP growth.

Trust us, we're central bankers

For all its theoretical merits, a switch to NGDP targeting would throw up some new problems—and old ones. The Fed has not exactly sat on its hands since the financial crisis began in 2007, so it is far from clear it could easily reach the new goal. Moreover the theory of how inflation targeting works is well-established: by anchoring the expectations of businesses and households, it encourages them to set wages and prices that will comply with the target. That anchoring can allow central banks to look beyond temporary surges in inflation such as those driven by commodity prices. One worry about NGDP targeting is that it would be harder to pin down people's expectations, not least since nominal GDP may be a harder concept to grasp and is measured less often.

The biggest risk may be the loss of credibility. Whatever its shortcomings, inflation targeting has yielded a reasonably stable macroeconomic environment for the past two decades. Central banks in America and Europe have at least avoided following Japan into deflation, which raises debt in real terms and so makes deleveraging even more of an uphill struggle. Asking central banks to ditch inflation targeting and to pursue another goal could do more harm than good particularly if it left people less certain about the central bank's ultimate commitment to prudence and stability. That is why a switch to NGDP targeting, whatever its virtues, should not be undertaken lightly.