The Case for a Long-Run Inflation Target of Four Percent

By Laurence M. Ball. Social Science Research Network, 2014

155 citations recorded by the source corpus.

Many central banks target an inflation rate near two percent. This essay argues that policymakers would do better to target four percent inflation. A four percent target would ease the constraints on monetary policy arising from the zero bound on interest rates, with the result that economic downturns would be less severe. This benefit would come at minimal cost, because four percent inflation does not harm an economy significantly.

View Paper: https://www.semanticscholar.org/paper/04dc700bdea0afcb478de2af8c2888512d4ab0d6

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Citations in the corpus

Policy Uncertainty in Japan (2017, unknown): “To appreciate how the past conduct of monetary policy shapes the current policy environment – and the scope for negative shocks to trigger a rise in policy uncertainty – consider recent proposals to raise the target rate of inflation (e.g., Blanchard et al., 2010 and Ball, 2014).”
Measuring the effects of federal reserve forward guidance and asset purchases on financial markets (2020, unknown): “…then the ZLB constraint is more costly, and policymakers should go to greater lengths to avoid hitting it in the first place, such as by choosing a higher inflation target, as advocated by Summers (1991) , Blanchard et al. (2010) , Blanchard in The Wall Street Journal (2010) , and Ball (2014) .”
Necessity As the Mother of Invention: Monetary Policy after the Crisis (2017, background): “But proponents of raising the inflation target argue that the risks are greater than these models suggest—because, for example, inflation and both nominal and real interest rates were much higher in the simulation periods than they are likely to be going forward (Ball, 2014; Krugman, 2014).”