Is there a case for inflation overshooting?

Vasco Cúrdia

FRBSF Economic Letter, 2016

Abstract: In the wake of the financial crisis, the Federal Reserve dropped the federal funds rate to near zero to bolster the U.S. economy. Recent research suggests that the constraint preventing this rate from being even lower has kept the economy from reaching its full potential. Given the lingering economic slack, allowing inflation to rise temporarily above the Fed?s 2% target might help achieve a better balance between the Fed?s dual mandates of maximum employment and stable prices more quickly.

Date: 2016
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