© 2020 Mercatus Center. All rights reserved.
Can the Market Set Better Monetary Policy Than the Fed?
Currently, US monetary policy is largely based on the Federal Reserve targeting inflation to keep the economy stable. That means it ensures that inflation—the increase in the prices of goods and services—does not venture too far from 2 percent. But for years, inflation has stayed below 2 percent and all the while, we have not seen strong levels of economic growth.
Forecasting NGDP Growth
How It Works — And How You Can Win Amazon Gift Prizes
To participate, go to hypermind.com and click “Register.” You’ll be prompted to answer a few simple questions. You’ll then receive an invitation to start forecasting!
Participants do not invest any of their own money in the market. However, participants who make growth in 2021 and 2022 are eligible to win Amazon gift certificates. Hypermind will distribute the gift certificates (equal to the total available money invested, currently $60,000) among all participants in proportion to their ability to accurately forecast.
To test this hypothesis, the Mercatus Center has sponsored the development of nominal GDP forecast competitions through Hypermind, a prediction market company. Last year, we established a competition for nominal GDP growth in 2020 (2020:Q1 to 2021:Q1).
As the American economy recovers the 2020 COVID-19 pandemic amidst great uncertainty, Mercatus has decided to launch two more years of the competition (2020:Q4 to 2021:Q4 and 2021:Q4 to 2022:Q4).
The Mercatus Center’s David Beckworth and Scott Sumner have made the case that an alternative monetary policy approach, nominal gross domestic product (NGDP) level targeting, where the Fed would target the sum of spending in the economy, is superior to inflation targeting.
But how do you determine if monetary policy is set appropriately to produce stable growth in NGDP? Let's let the market decide, Sumner and Beckworth hypothesize.
Currently, US monetary policy is largely based on the Federal Reserve targeting inflation to keep the economy stable. That means it ensures that inflation—the increase in the prices of goods and services—does not venture too far from 2 percent. But for years, inflation has stayed below 2 percent and all the while, we have not seen strong levels of economic growth.
The Mercatus Center’s David Beckworth and Scott Sumner have made the case that an alternative monetary policy approach, nominal gross domestic product (NGDP) level targeting, where the Fed would target the sum of spending in the economy, is superior to inflation targeting.
But how do you determine if monetary policy is set appropriately to produce stable growth in NGDP? Let's let the market decide, Sumner and Beckworth hypothesize.
FORECASTING NGDP GROWTH
To test this hypothesis, the Mercatus Center has sponsored the development of nominal GDP forecast competitions through Hypermind, a prediction market company. Last year, we established a competition for nominal GDP growth in 2020 (2020:Q1 to 2021:Q1).
As the American economy recovers the 2020 COVID-19 pandemic amidst great uncertainty, Mercatus has decided to launch two more years of the competition (2020:Q4 to 2021:Q4 and 2021:Q4 to 2022:Q4).
HOW IT WORKS — AND HOW YOU CAN WIN AMAZON GIFT CARDS TOO
To participate, go to hypermind.com and click “Register.” You’ll be prompted to answer a few simple questions. You’ll then receive an invitation to start forecasting!
Participants do not invest any of their own money in the market. However, participants who make growth in 2021 and 2022 are eligible to win Amazon gift certificates. Hypermind will distribute the gift certificates (equal to the total available money invested, currently $60,000) among all participants in proportion to their ability to accurately forecast.
© 2020 Mercatus Center. All rights reserved.
CAN MARKET
SET POLICY
BETTER THAN THE FED?