I review The Money Illusion. I conclude on a skeptical note:
Would an NGDP futures market provide a reliable guide for discretionary monetary policy? That seems like an empirical question. But my guess is that if NGDP can be accurately forecast by speculators, then the market NGDP forecast can already be extracted from the above-mentioned indicators.
An assertion that you made a better forecast of NGDP than the Fed did in 2007, even if that assertion is true, does not prove your case. If I were a market monetarist, articulating an NGDP forecasting algorithm derived from market indicators, and demonstrating its reliability through a variety of historical episodes, would be high on my research agenda.
I haven’t read Scott’s latest book, but I’ve always had the sense that Scott considered NGDP targeting a monetary rule, not an aid to discretion.
The Fed would conduct monetary policy operations such that the futures market predicted the targeted NGDP level. Looking at 2008Q3 using this rule, if the market implied 2009Q3 NGDP value fell to, say, 2%, the Fed would conduct open market operations until the value rose back to 4% or whatever the target was.
I have to admit, I’m not convinced that the latest economic cycle was a good test. Scott has been talking about how NGDP is roughly back to trend and that in this case the real economic shortfall is much less than after 2008, but 2020 was fundamentally a supply side recession and monetary policy was also less relevant (there’s also that massive Keynesian confounder with the trillions of fiscal stimulus).