… the basic idea could hardly be simpler. The growth figures that dominate the headlines are of “real” gross domestic product, which means they are corrected for inflation. With nominal GDP they are uncorrected. The idea of targeting nominal GDP is to leave room for real growth, but damp any inflationary take-off….
A nominal GDP objective is far from a new idea. It was promulgated by the Nobel Prize-winning economist James Meade and by Sylvia Ostry, one-time economic director of the OECD. Nominal GDP is at least discussed in the reports of the US Council of Economic Advisers. A target could in principle be adopted by the eurozone if it ever moved away from its obsession with fiscal austerity. It could also be the basis of a British “Plan B”. It cannot be emphasised enough that it is not an alternative to monetary and fiscal policy, simply a guide to how they should be used.
Samuel Brittan, Financial Times, “A real alternative to austerity economics”, 10/May 2012