Short-Term Economic Management and Economic Growth
Chair: Associate Professor Gigi Foster
1. Nominal Income Targeting versus Inflation Targeting in Advanced and Emerging Economies
Professor Warwick J McKibbin, ANU
The issue of the optimal choice of monetary regime continues to be debated. While inflation targeting has proven to be a useful monetary framework in driving the world economy from a high inflation to a low inflation world, there are clear disadvantages in inflation targeting. A strong case can be made that nominal Income targeting should replace inflation targeting under the current state of the global economy. This purpose of this study is to compare inflation targeting with nominal Income targeting in terms of several criteria: 1) the ability of each regime to handle different domestic and foreign economic shocks; 2) the ability to forecast the targets; 3) timeliness and quality of data measurement; 4) extent and impact of data revisions.
2. Growth, Natural Rates and Policies
Professor Guay Lim, Melbourne University
The Australian economy has been growing below trend for several years and policy discussions have focussed on designing effective monetary and fiscal policies to stimulate growth (preferably without aggravating household and public debt). Growth in the global economy has been similarly lacklustre, prompting parallel discussions about changes in the natural rate of interest, the NAIRU and potential output since the global financial crisis. The fall in the natural rate of interest during this period has sparked a debate about why saving is outstripping investment and whether that provides a satisfactory explanation for slow rates of growth. Proponents of “secular stagnation” argue that the saving-investment gap is driven by persistent factors such as a decline in profitable investment opportunities, and hence favour policies to support productivity-enhancing investments. Proponents of “savings glut” argue that the gap is driven by transient factors such as post-crisis debt deleveraging and hence suggest that better policies on global capital flows and trade will lead to improvements in growth. The presentation will show estimates of the natural rate of interest for Australia, compare them with actual interest rates, and discuss the implications for the design of policies to promote economic growth.
3. Rebalancing Monetary and Fiscal Policies
Dr Peter Abelson and Tim Dalton, Applied Economics
Developed economies generally have tended to rely on monetary stimulus to support demand in the period since the global financial crisis while favouring austerity fiscal budgets, at least in principle. Very low interest rates have limited impact on aggregate demand, regressive social impacts via changes in asset prices and risk financial instability. This paper advocates a more pro-active fiscal policy, based on borrowing for public investment in productive capacity including education and less fear of debt and seeks to provide some guidelines for fiscal policy including debt in a low interest economic environment.