Stabilising Nominal GDP

Following up on my post yesterday, I decided to delve a little deeper into the properties of the NGDP series for the UK, to see what the characteristics were over different periods and whether they support the notion that an NGDP level target is a good nominal anchor.

fig.1

Ful NGDP growth

fig.2

earlier growth

fig.3

latter growth

Figures 1-3 are simply plots of the annual y.o.y. growth rate of NGDP in the UK split over different time frames for ease of viewing. Oddly enough a quick glance at fig.1 may lead us to believe that nominal GDP for the UK has been more variable over the latter years of the sample range.  Nevertheless, we need to be more precise than just making judgements based on cursory glances of the data, so below are variances calculated over different ranges. I decided to calculate the variance over the period leading up to 1940 and separately for the period after, since I am interested in whether stable nominal GDP  coincides with stronger economic performance. As mentioned in my previous post, since the period after1940 was one of the longest phases of stable economic growth without a major collapse, this division seemed a natural choice.

Variance for 1831-1940=32.115              Variance for 1941-2009=26.4103

As you can see from the values, the variance of the growth rate of nominal GDP after 1940 was some 4 percent lower than the period before 1940.

In my opinion this is another piece of evidence suggesting stable nominal GDP growth is a causal factor in determining stronger economic performance.

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