Monday, June 11, 2012

The Bank of Israel is not using NGDP Targeting

A couple days back Scott Sumner approvingly linked to a piece by a little-known blogger named Evan Soltas in which Soltas alleged that the Bank of Israel is using NGDP targeting.

Then Matthew Yglesias approvingly linked to the Scott Sumner article, and now around the web you're seeing market monetarists in comment threads bringing up how wonderful NGDP targeting is and wouldn't it be nice if all central bankers were as smart as the ones at Bank of Israel.

Well, there's a problem.  The Bank of Israel is not using NGDP targeting.  Soltas' "evidence" that the Bank of Israel was using a 6.5% NGDP target is that Israel's NGDP growth rate has hovered around 6.5% the past few years.  Seriously, that's the evidence.  

Sumner, who despite being by all accounts a nice guy traffics in these kinds of flimsy free-associations all the time, took Soltas' post at face value, and Yglesias, who is not known for his rigor, catapulted the whole myth into what passes for the blogosphere's "mainstream."  

This is the same thing that happened with Sweden's fictional negative interest rate policy - Yglesias linked to an old article that had since been corrected and now the myth keeps popping up because Yglesias never, ever corrects anything.  

I defend Matt a lot to people who think he's a real nuisance, but this sort of thing makes it hard.  Correct the record, Matt.  Bank of Israel is not using NGDP targeting - they're using a 1-3% inflation target.  Full stop.

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