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Is there a case for inflation overshooting?

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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.

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  • Vasco Curdia, 2016. "Is there a case for inflation overshooting?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00082
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    1. Vasco Curdia, 2014. "The risks to the inflation outlook," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Christopher J. Erceg & Andrew T. Levin, 2014. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 3-49, October.
    3. Cúrdia, Vasco & Ferrero, Andrea & Ng, Ging Cee & Tambalotti, Andrea, 2015. "Has U.S. monetary policy tracked the efficient interest rate?," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 72-83.
    4. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
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