I actually meant public_debt:GDP. I think growth there continues to be a concern, because it’s not “determined” in the way you said afaik, and e.g. COVID?
NGDP targeting theoretically doesn’t care one-way or the other about the amount of public debt (assuming an independent central bank). If the government spends too much money (due to a crisis like Covid), the interest rates it has to pay will rise and it will face a sovereign debt crisis. Two outcomes are possible: 1) the government declares bankruptcy, can no longer borrow on the public markets, and is forced to raise taxes or cut spending 2) the government mandates that the central bank buy public debt, monetizing the debt and producing above-target inflation. Case 2) (which is by far the more common one) is no longer NGDP targeting since the central bank ceases to independently follow its NGDP target.
I actually can’t think of a real-world example of case 1). When governments face a sovereign debt crisis and respond with austerity, NGDP generally falls well below trend. See, for example, Greece. I’m not sure why this is, but probably because austerity is forced on the country by an outside institution (usually the IMF or in Greece’s case the ECB) which cares more about getting its debts repaid than about making sure NGDP stays on-trend.
if you lower your FX, your nominal GDP should go up because your produced goods are now worth more of your own dollars
If the central bank sells FX and buys domestic currency, this will cause the value of you domestic currency to rise, meaning the price (in domestic dollars) of goods produced in your country will fall.
Obviously the central bank can only do this if it has FX reserves to sell. If not, then it has to raise interest rates, which should similarly cause the value of the domestic currency to rise (and nominal GDP to proportionately fall).
NGDP targeting theoretically doesn’t care one-way or the other about the amount of public debt (assuming an independent central bank). If the government spends too much money (due to a crisis like Covid), the interest rates it has to pay will rise and it will face a sovereign debt crisis. Two outcomes are possible: 1) the government declares bankruptcy, can no longer borrow on the public markets, and is forced to raise taxes or cut spending 2) the government mandates that the central bank buy public debt, monetizing the debt and producing above-target inflation. Case 2) (which is by far the more common one) is no longer NGDP targeting since the central bank ceases to independently follow its NGDP target.
I actually can’t think of a real-world example of case 1). When governments face a sovereign debt crisis and respond with austerity, NGDP generally falls well below trend. See, for example, Greece. I’m not sure why this is, but probably because austerity is forced on the country by an outside institution (usually the IMF or in Greece’s case the ECB) which cares more about getting its debts repaid than about making sure NGDP stays on-trend.
If the central bank sells FX and buys domestic currency, this will cause the value of you domestic currency to rise, meaning the price (in domestic dollars) of goods produced in your country will fall.
Obviously the central bank can only do this if it has FX reserves to sell. If not, then it has to raise interest rates, which should similarly cause the value of the domestic currency to rise (and nominal GDP to proportionately fall).