This is the Cato Daily Podcast for Monday, May 23rd, 2016.

I'm Caleb Brown.

Nominal GDP targeting would, some economists hope, rain in some of the feds currently unmoored discretion

David Beckworth is one of those economists he's a former Treasury official and a

professor of economics at Western Kentucky University, we spoke last week.

Scott Sumner, one of your colleagues has argued vociferously and I think Tyler Cowan

is sort of on board in terms of Mercatus folks who are on the

bandwagon of nominal GDP targeting and part of the argument for that

is that market expectations

will play an outsized role in what those inGB targets actually are?

Yes, the target would actually be set by the Fed,

but it would be operationalized by what the market thought was happening in terms of growth going forward.

So at the Federal Reserve set a nominal GDP target at 5%, it would issue futures contracts where it would trade at a certain price where it hoped nominal GDP would go and based on that if the market thought, for example,

that nominal GDP, which is just another way of saying,

total dollar spending, if it was going to be below target,

then the Fed would be creating more money through those targets automatically

people would be selling to the Fed and the Fed would be buying them and

injecting money to the economy and that would increase the amount of monetary base

and fuel and increase in spending until it got to the target.

And then vice versa, if it was above,

it would be pulling money out through these future contracts.

But the key point of it is that market participants would instigate the buying

...