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Valid point, but I think there might be a deeper reason as well to support good monetary policy. If we believe the dignity hypothesis of Deirdre Mc Closkey, then the longer and more uninterrupted the march of liberal political economy in the world, in both time and space, the more the world gets prosperous. Every long recession is an opportunity for particularism/fascism on the right (take from those who don't look/behave like you)and communism on the left (take from those who are richer than you) to raise their heads. A great moderation lasting 60 years might actually be able to completely discredit, if not eliminate, their rhetoric from everywhere in the world. It might be possible to model this with an expectations model of net worth over a lifetime (whenever it dips beyond a certain level, support for structurally bad policy increases leading to lowering of real growth rate) but that is way beyond anything I can construct. Others reading this blog, please go ahead and build on it if you feel this has some merit.
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Hi Nick, Slightly Offtopic. It seems like the need for money is a positive function of the number of participants in the wicksellian circle, keeping communication, laws and trust constant, since every step will want to maintain a cash balance. Doesn't this imply that Nominal Gross output level targeting might be better than NGDPLT, since it will more closely reflect the demand for money for transactions?
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