January 19, 2015

NGDP Stabilization within an Ecology of Plans

Chasing a Mirage
  • Richard Wagner

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
  • Vipin Veetil

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NGDP stabilization is the latest of a set of rules that a good number of theorists have claimed could serve as an effective instrument for a central bank to follow in its promotion of macro-level stabilization. This claim is a mirage that is created by inaptly theorizing the relationship between macro-level variables and micro-level interactions. Within that inapt theorization, macro observations are treated as being independent of micro-level interactions. In contrast, we treat the micro-macro relationship as ecological in character. We explain our claim by advancing a systems-theoretic or parts-to-whole framework for capturing interaction between micro-level action and macro-level observations. Within this alternative framework, there is interdependence between macro-level and micro-level theories. Once this interdependence is taken into account, it becomes possible to see how the pursuit of NGDP stabilization can impair micro-level coordination by chasing what is effectively a mirage.