Many economists now believe that the 2 percent target was a mistake,

 ... that it should have been 3 or even 4 percent. 

So if the 2 percent target was probably a mistake, and if we could do it over again, we’d probably go for 3, why not just declare victory over inflation today?

The main answer seems to be concerns that accepting somewhat higher inflation would damage central banks’ credibility.

That’s not an entirely foolish concern, although monetary credibility probably matters much less for real-world inflation than central bankers tend to imagine.

Should policy be permanently locked into a target that now looks wrong out of fear that changing it will make policymakers look weak?

Option 2 looks like the most likely strategy. 

The Fed could adopt a policy of strategic hypocrisy, insisting that its target hasn’t changed while in practice allowing inflation close to 3 percent for several years; then, once it has become clear that such a policy won’t allow runaway inflation, finally change the formal target.

Paul Krugman New York Times 22 August 2023

Riktiga karlar är inte rädda för lite inflation

Englund blogg 19 februari 2010

Inlägg med etikett 2p

Inlägg med etikett Ego+


Populära inlägg i den här bloggen

Röd Öppning - Red Opening

Niklas Ekdal, bunkergängets apologet

Swedbank: Svagare krona krävs för att nå inflationsmålet