Why Should the Fed Aim to Stabilize Total Current Dollar Spending?
January 29, 2011 at 22:37 PM EST
This figure makes it very clear why: changes in nominal spending get translated largely into changes in real economic activity. Its impact on the price level is far less. Of course, in an environment where inflation expectations get unanchored, like the 1965-1979 period, nominal spending shocks will have a greater impact on the price level [...]