Before this, nominal GDP is hardly a statistics one would look at. Things are starting to change with the rise of market monetarism.
Here is how the nominal GDP for Malaysia looks like, in comparison to real GDP. As you can see, there is a big gap between potential and actual output in nominal GDP.
A market monetarist will want the loss in potential output in nominal terms be dealt with. If the person had gotten his way, there would not have been a drop in the nominal GDP. Or rather, the nominal trend would have been more constant instead of exhibiting large variation year after year.
The same loss can be seen in terms of growth.
A market monetarist at Bank Negara would have engaged in big expansion of money supply in late 2008 and 2009 to stabilize the nominal GDP. And he would have tightened supply in 2007 and much of 2008.
This raises a question for me. While I do see the virtues of market monetarism, especially when inflation is persistently too low like in the US, would it work in Malaysia?
The reason I am asking is that I am worried about stagflation. We know that the stagflation of the 1970s was terrible but would that be better than what we experienced in 2009?
