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

Laurence Ball

No 2014/092, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; recession; federal funds rate; economist; nominal interest rate; Inflation; Monetary Policy; Inflation Target; inflation expectation; inflation uncertainty; inflation rise; inflation rate; lower-than-average inflation; single-digit inflation; inflation process; inflation low; Inflation targeting; Zero lower bound; Real interest rates; Europe; Global (search for similar items in EconPapers)
Pages: 21
Date: 2014-06-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (116)

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