Canadian central bank chief Mark Carney, who will become governor of the Bank of England in June, caused a stir on both sides of the Atlantic when he appeared to endorse a new monetary policy based on nominal gross domestic product (NGDP) targeting. A fresh approach to the current policy, which has manifestly failed to guarantee macroeconomic stability, is certainly long overdue. But could NGDP targeting have really prevented the financial meltdown and the ensuing recession as its advocates claim? Unlikely, says Tom Clougherty. Central banks lack both the power and the knowledge needed to deliver stable economic growth.
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