Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?

Marek Dabrowski

No 501, CASE Reports from CASE-Center for Social and Economic Research

Abstract: Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.

Keywords: monetary policy; inflation; inflation target; economic growth; central bank independence (search for similar items in EconPapers)
JEL-codes: E31 E51 E52 E58 F62 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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