Copy of LinkedIN post, 2020
The IMF definition. “A nominal anchor is a variable policymakers can use to tie down the price level. One nominal anchor central banks used in the past was a currency peg—which linked the value of the domestic currency to the value of the currency of a low-inflation country.”
#SarwatJahan in his piece for the IMF “BACK TO BASICS” publication discusses Inflation Targeting with a ‘nominal’ foundation.
In an opinion piece in #THEHILL, on “How to fix the Fed” By Peter J. Boettke, Alexander William Salter and Daniel J. Smith, Opinion Contributors - 10/22/20 07:30 PM EDT; the Nominal Anchor is discussed.
The focus on the ‘nominal’ is the design flaw.
Targeting requires a monetary focus devoid of other requirements. The recent Fed change in focus from ‘Monetary and then to Employment’ to the current philosophy and mission of ‘Employment and then Monetary’ generates risks for which we do not have efficient management tools.
Focus on the ‘Real’. That delivers domestic currencies not requiring currency peg.