There have been six such contracts between the treasurer and the bank since Glenn Stevens took over as governor in September 2006. His successor, Philip Lowe, takes office on September 18.

Although the wording has varied, each contract has required the governor to keep underlying inflation at an average of 2 to 3 per cent over the business cycle.

When Parliament resumes next week, Senator Xenophon will move that the Senate economics committee investigate replacing the inflation target with one for nominal growth, with the most likely mid point being 5.5 per cent.

Writing in Fairfax newspapers on Monday, Senator Xenophon and Danny Price of Frontier Economics argue that Australia needs nominal economic growth of at least 5 per cent in order to stabilise debt and for businesses and households to feel able to invest and spend more.

Near 10 per cent at the height of the mining boom, nominal growth is now just 2 per cent. The bank feels unable to boost it unless inflation is low, and the steady increases in the prices of electricity, gas and alcohol and tobacco excise give inflation a floor.

"Right now we've got economic policy with the blinkers on," Senator Xenophon said. "By being one-eyed about inflation, we are ignoring the money in the pockets of Australians, unless the two happen to coincide."

Supporters of the shift from inflation targeting towards nominal growth include The Economist, former US treasury secretary Larry Summers, Christina Romer, a former chairwoman of the Council of Economic Advisers under President Obama, and Australian economists John Quiggin and Warwick McKibbin.

Professor McKibbin, a former member of the Reserve Bank board, said that before Australia formalised its inflation target in the early 1990s it effectively targeted both prices and growth, cutting interest rates if growth dipped even if prices did not. Since then, inflation targeting worked well enough until about five years ago, when weak productivity growth severed the link between inflation and growth.

"With a debt-laden society, both public and private, you've got to get nominal GDP growth, otherwise your revenue and your balance sheets get hit badly," he said. "You should be willing to risk inflation in order to get nominal growth up, but with an inflation target you get penalised if you try."

Professor McKibbin said inflationary expectations needed to climb to give people and businesses the confidence to lift wages and profits.

Mr Price said replacing the inflation target with a nominal GDP target would mean higher interest rates during booms when incomes were soaring and even lower rates at times, like now, when incomes and profits were stagnating.

Professor Quiggin said if nominal GDP growth rather than inflation had been targeted during the boom, central banks would have come down harder on the asset speculation that led to the financial crisis.

Former Reserve Bank board member John Edwards disagreed, saying nominal growth was driven by export prices, which the Reserve Bank was powerless to influence.

"I don't know how you would offset it, and I don't know why you would want to," he said. "I think it's a silly idea. Until now targeting inflation has worked well."

A spokeswoman for Treasurer Scott Morrison said a new contract would be signed after Mr Lowe took office.

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