Even among those who agree with market monetarists regarding monetary policy, some prefer growth level targets, while others would be equally comfortable with growth targets. However, a growth target isn't necessarily anchored to economic activity in aggregate, as an unbroken continuum over time. How might one think about the difference between these two options, as a potential monetary rule?
For one, a growth level target would be less subject to either discretion or political favoritism. Even though populists and others might declare a "need" for greater growth, a growth level target rule would nonetheless instruct central bankers to continue following the lead of the marketplace. After all, economic stability is a result of monetary representation which aligns as closely as possible, with existing conditions across the real economy. Despite the supply shocks which may affect GDP and output, a nominal target level can smooth the disruption among sectors which aren't directly connected to the supply shock.
While a growth target could closely approximate changing supply side circumstance, chances are this form of discretion - as a policy rule - would instead be used for the wrong reasons. For instance: today's sluggish market conditions were also a result of a high level of central banker discretion, prior to the Great Recession. Even though monetary policy returned to a familiar growth trajectory, there's no escaping the fact that (overall) trajectory exists at a lower level. Yet in spite of this important fact, too much confusion surrounds the fallout which also occurred, due to excess central banker discretion.
There's no denying the importance, of maintaining via monetary policy, a reasonably constant level of economic activity over time - wherever possible. And prior to the Great Recession, any further discretion on the part of central bankers which could have amended a heavy loss of monetary support, needed to occur quickly. Instead, they only utilized a heavy level of discretion once and in basically one direction: downward. Consequently, even though the Great Recession began as a loss of monetary representation, that loss spread to the real economy as well.
Since the loss of that earlier level of output has not been carefully discussed with the public, it's difficult to know for certain, whether central bankers are willing to adhere to a stable monetary level in the near future. Will they keep the monetary policy focus on the supply side (instead of credit) conditions that are responsible for long term growth?
Indeed: should a growth target be adopted, such a rule could still lead to discretionary problems - especially if growth levels are adjusted for the wrong reasons. Whether implied or explicit, monetary policy decisions may either be subjected to wishful thinking, or possibly negative assumptions which do not accurately designate existing marketplace conditions, among other things. Hence some might be tempted to use the rationale of a growth target, to arbitrarily shift down the money supply, once again.
Granted, a growth target is more logical than today's interest rate targeting. Just the same, such a rule would still face pressure from existing political and/or credit driven circumstance, both of which may interfere with real economy conditions and obligations. Whereas a growth level target would return monetary policy to a more practical position that is less reactive to political disturbances.
Most important, a level nominal target rule would highlight where the real responsibility lies, for a better economic reality: the supply side. Real growth is still possible when special interests do not stand in the way. Yet it's been too easy for many of their representatives to hide behind the discretionary mistakes of central bankers, instead of facing their own shortcomings. With a level target rule, monetary policy would be able to proactively respond to supply side conditions that generate new growth, instead of making constant adjustments on behalf of the special interests which seek to limit growth.