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Put aside ngdp targeting and other possible options, should be raise the target rate to three or possibly four percent? No, as I argue in my latest Bloomberg column. After some of the standard economic treatments, I also make a political economy argument:
Might it be that a 4% steady state rate of inflation simply isn’t politically stable? A party defending a 4% target might be vulnerable to an opposition party pledging a lower target, or to a populist party pledging some imaginary “free lunch” that does away with inflation altogether. When a 4% inflation target was first proposed, these political risks seemed far less plausible than they do today.
The “liquidity trap” arguments for a 4% inflation rate are complex, and I strongly suspect they are not political winners, given the unpopularity of inflation. For better or worse, this is no longer a world in which elites can simply do what they deem best, without much popular support.
Most of all I am struck by how, once we are in the range of four to five percent inflation, the voices for the four percent inflation target have gone relatively silent.
The post Is a two percent inflation target obsolete? appeared first on Marginal REVOLUTION.
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