Let me take this opportunity to thank the participants for an interesting discussion and offer my perspective on the areas of agreement and disagreement.
I agree with Sumner that achieving a higher level of nominal GDP growth over the last year would have been helpful and that the Fed put insufficient weight on this objective. In particular I have misgivings about the Fed’s deliberate decision to encourage an explosion of excess reserves. I nevertheless believe that there were profound problems with financial markets which, once we had entered the fall of 2008, there was little that monetary policy could have done to prevent. I have emphasized that quarterly changes in nominal GDP, or if you prefer, quarterly shocks to velocity, are beyond the powers of the Federal Reserve to control or offset.
In his last entry, Sumner appears to be in agreement with this last claim, and indicates a willingness to discuss nominal GDP targeting as a loose multi-year objective. This is a much less controversial idea than I originally understood him to be proposing. My own preference would be to include nominal GDP growth among the many indicators we watch, but there may be substantial common ground between this view and what Sumner proposes.
On the possibility of using futures markets to implement the idea, I am afraid that we are unable to reach common ground here. My observation that the quantity of futures contracts written can not be used as a guide to forming monetary policy has nothing to do with whether the Fed is on one side of the contract or not. Yes, the volume of Fed open market operations is a meaningful number and yes if the Fed sets the money supply to zero that will have consequences. But the whole notion of using these contracts as a guide for policy seemed to be that the volume of positions taken by private participants is a meaningful number. I continue to maintain that price, not quantity, is the relevant signal, and remain unpersuaded that these contracts could be used in the way that Sumner envisions.