Raghuram Rajan: evaluation

Transcript context

…But if we think sticky nominal wages are a problem, and we then want the flow of nominal payments to grow at some preordained rate each year so that stickiness doesn’t cause output losses, why isn’t nominal GDP targeting necessarily better than, say, inflation targeting? No, I’m not saying that it’s better or worse. I’m just saying that, for me, it’s a mystery how these concepts translate to the common person, whose expectations we care about, unless you think they don’t matter, and who we are communicating to are largely the union bosses, are largely the analysts on the street. These are the people who determine how the economy moves and shakes, not the ordinary person who’s making consumption decisions. But some of our theories require that person to also internalize our model of whether it’s inflation targeting or nominal GDP targeting. And my sense is, it would be very useful for us to know how that transmission takes place. If citizens don’t understand what the rate of price inflation is, am I wrong to think that the American public has become much more inflation averse compared to, say, the 1980s? In the Reagan recovery, you have rates of price inflation, 5 percent. I’m not sure people like it, but it’s not a big issue. Whereas today, you creep a bit over 2 percent, people flip out and go crazy. Why has that change happened?…

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