NGDP Targeting: Is 5 Percent Too Much?

This paper examines whether the "market monetarism" prescribing a 5% yearly NGDP growth rate was too much between the dot-com and the subprime mortgage crises. To do this I search for evidences of monetary disequilibrium in other variables such as trend deviations, the behavior of intermediate prices, and interest rates. I find evidences that suggest that the 5% growth of NGDP in the years prior to the crisis might have been excessive. Although this observation does not question the principle behind NGDP targeting, it suggests that the target should be carefully chosen. This result is also consistent with the interpretation that monetary policy was too loose for too long from 2002 to 2007 following other indicators such as the Taylor Rule.