Some history

Nominal income targets first became popular in the 1980s, when the prevailing focus was targeting the money supply (as pointed out in this presentation by Jeff Frankel). Some big name economists gave them attention, including in the following famous articles: (for a longer list see here)

• Meade, J. 1978, “The Meaning of “Internal Balance” The Economic Journal, 88(351), 423–435.
• Tobin, J., 1980, “Stabilization Policy Ten Years After” Brookings Paper on Economic Activity, 11, 19-90.
• Bean, C. R. 1983, “Targeting Nominal Income: An Appraisal” The Economic Journal, 93(372), 806–819.

More recently, following the global financial crisis, there has been a second wave of interest in NGDP targets, for example:

• Woodford, 2012, “Methods of Policy Accommodation at the Interest-Rate Lower Bound“
• Frankel, J., 2013 “Nominal-GDP targets, without losing the inflation anchor” in Is Inflation Targeting Dead? Central Banking After the Crisis, VoxEU
• Sumner, S. 2014, “Nominal GDP Targeting: A Simple Rule to Improve Fed Performance.” Cato Journal 34 (2): 315–37
• Beckworth, D., and Hendrickson, J. R., 2016, “Nominal GDP Targeting and the Taylor Rule on an Even Playing Field.” Mercatus Working Paper. Arlington, Va.: Mercatus Center at George Mason University (October).

This second wave has come in the context of perceived failures of inflation targets.

We can therefore witness a steady evolution in thought: perhaps instead of being bound by a money growth rule (M), or an inflation target (P), the central bank should instead target nominal income (P+Y). This means that real productivity will determine the split between inflation and real growth – if productivity is strong then inflation will be low, but when there’s a real business cycle slow down inflation is permitted to rise. These adjustments will take place such that NGDP remains stable. This video by MoneyWeek does a nice job explaining how this balancing act is already part of the Fed’s perview: