Market monetarism
Market monetarism is a school of macroeconomic thought that advocates that central banks target the level of nominal income instead of inflation, unemployment, or other measures of economic activity, including in times of shocks such as the bursting of the real estate bubble in 2006, and in the financial crisis that followed. In contrast to traditional monetarists, market monetarists do not believe monetary aggregates or commodity prices such as gold are the optimal guide to intervention. Market monetarists also reject the New Keynesian focus on interest rates as the primary instrument of monetary policy. Market monetarists prefer a nominal income target due to their twin beliefs that rational expectations are crucial to policy, and that markets react instantly to changes in their expectations about future policy, without the "long and variable lags" postulated by Milton Friedman. History The term "market monetarism" was coined by Danish economist Lars Christensen in August 2011, and was quickly adopted by prominent economists who advocated a nominal income target for monetary policy. Scott Sumner, a Bentley University economist and one of the most vocal advocates of a nominal income target, adopted the label of market monetarist in September 2011. Sumner has been described as the "eminence grise" of market monetarism. In addition to Scott Sumner, Lars Christensen attributes economists Nick Rowe, David Beckworth, Joshua Hendrickson, Bill Woolsey and Robert Hetzel to be "instrumental in forming the views of Market Monetarism". Yue Chim Richard Wong, professor of economics at the University of Hong Kong, describes market monetarist economists as "relatively junior in the economics profession and ... concentrated in the teaching universities." The Economist states that Sumner's blog "drew together like-minded economists, many of them at small schools some distance from the centre of the economic universe"; consequently, Christensen considers market monetarism to be the first economic school of thought born in the blogosphere. Although rejecting Milton Friedman's notion of long and variable lags in the effects of monetary policy, market monetarism is typically associated with Friedman's thought, especially with respect to the history of the Great Depression. Ambrose Evans-Pritchard has noted that Christensen, who coined the name "market monetarism," authored a book on Friedman. Evans-Pritchard described the school as, "not Keynesian. They are inspired by interwar economists Ralph Hawtrey and Sweden's Gustav Cassel, as well as monetarist guru Milton Friedman." Evans-Pritchard traces the idea of nominal income targeting to Irving Fisher's Depression-era proposal of a "compensated dollar plan." The idea of targeting nominal GDP was first proposed in James Meade (1978), and discussed in the economic literature during the 1980s and 1990s. Bruce Bartlett, former adviser to U.S. President Ronald Reagan, and Treasury official under President George H. W. Bush, first noticed in 2010 the emergence of Scott Sumner, and the movement of economic debates to the blogosphere. Bartlett credited Sumner with bringing the concept of market monetarism into the national debate about economics. The Economist later noted that Tyler Cowen, professor of economics at George Mason University, and Nobel laureate Paul Krugman had linked