Finding the Right Inflation Target

Deergha Raj Adhikari

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2022, vol. 68, issue 3, 149-159

Abstract: Many believe that the inflation target of 2 percent as set by the U.S. Federal Reserve is too low. Setting an inflation target that is too low or too high would prompt the Fed to prematurely use a contractionary or expansionary monetary policy, thereby doing more harm than good to the economy. Our purpose, therefore, was to find the right inflation target from a U.S. monetary policy perspective. We applied the threshold model on U.S. real GDP growth rate and the inflation rate using annual data from 1990 to 2020. Our study found that an inflation rate of up to 3.39 percent would positively impact the growth rate of real GDP and that above that, it had no effect. The policy implication of our study is therefore that the right inflation target from U.S. monetary policy perspective would be 3.39 percent.

Keywords: Growth rate of real GDP; inflation rate; threshold model; right inflation target; monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.3790/aeq.68.3.149 (application/pdf)
Access to full text is restricted to subscribers (2008 onwards); Pay-per-view access from https://elibrary.duncker-humblot.com/journals/aeq (2008 onwards) and http://www.genios.de (2008 onwards)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dah:aeqaeq:v68_y2022_i3_q3_p149-159

Ordering information: This journal article can be ordered from
https://www.duncker-humblot.de/zeitschriften/aeq

Access Statistics for this article

Applied Economics Quarterly (formerly: Konjunkturpolitik) is currently edited by Cinzia Alcidi, Christian Dreger and Daniel Gros

More articles in Applied Economics Quarterly (formerly: Konjunkturpolitik) from Duncker & Humblot GmbH, Berlin
Bibliographic data for series maintained by E-Publishing-Team ().