Hitting the elusive inflation target
Francesco Bianchi,
Leonardo Melosi and
Matthias Rottner
Journal of Monetary Economics, 2021, vol. 124, issue C, 107-122
Abstract:
Since the 2001 recession, average core inflation has been below the Federal Reserve’s 2% target. This deflationary bias is a predictable consequence of a symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to which the central bank responds less aggressively to above-target inflation corrects the bias, improves welfare, and reduces the risk of deflationary spirals – a pathological situation in which inflation keeps falling indefinitely. This approach does not entail any history dependence or commitment to overshoot the inflation target and can be implemented with an asymmetric target range. A counterfactual simulation shows that a modest level of asymmetry would have removed the deflationary bias observed in the United States.
Keywords: Asymmetric monetary policy; Deflationary bias; Deflationary spiral; Target range; Framework review (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393221001148
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Hitting the elusive inflation target (2021) 
Working Paper: Hitting the Elusive Inflation Target (2019) 
Working Paper: Hitting the Elusive Inflation Target (2019) 
Working Paper: Hitting the Elusive Inflation Target (2019) 
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:eee:moneco:v:124:y:2021:i:c:p:107-122
DOI: 10.1016/j.jmoneco.2021.10.003
Access Statistics for this article
Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser
More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().