Nominal GDP Targeting Required Now
Four years ago, then Federal Senator Nick Xenophon and Frontier Economics jointly made the case in the mainstream press for the Reserve Bank of Australia (RBA) to end the fixation with inflation targeting and instead move to targeting nominal GDP. A Frontier Economics bulletin at the time explained nominal GDP targeting in more detail. Instead, the RBA continued on with its single minded approach. Not only did the RBA undershoot its inflation target over the ensuing period, it also presided over rising unemployment in the 12 months prior to the country being devastated with the COVID-19 pandemic.
Australia could have avoided much economic pain had it shifted its position on inflation targeting years ago. This shift away from inflation targeting is now being supported by others in a recent op-ed in the Australian Financial Review. Now is the time for the RBA to move on.