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The Case for Four Percent Inflation

Author

Listed:
  • Laurence M. Ball

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.

Suggested Citation

  • Laurence M. Ball, 2013. "The Case for Four Percent Inflation," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(2), pages 17-31.
  • Handle: RePEc:tcb:cebare:v:13:y:2013:i:2:p:17-31
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2013/Volume+13-2/
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Doit-on abandonner les billets de banque ?
      by ? in D'un champ l'autre on 2014-05-23 16:06:00

    Citations

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    Cited by:

    1. Carvalho, Carlos & Ferrero, Andrea & Nechio, Fernanda, 2016. "Demographics and real interest rates: Inspecting the mechanism," European Economic Review, Elsevier, vol. 88(C), pages 208-226.
    2. Rod Cross, 2014. "Unemployment: natural rate epicycles or hysteresis?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 136-148, September.
    3. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    4. Vadym Lepetyuk & Lilia Maliar & Serguei Maliar, 2017. "Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?," Staff Working Papers 17-21, Bank of Canada.
    5. Taisuke Nakata, . "Reputation and Liquidity Traps," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    6. Tamim Bayoumi & Giovanni Dell'Ariccia & Karl F Habermeier & Tommaso Mancini Griffoli & Fabian Valencia, 2014. "Monetary Policy in the New Normal," IMF Staff Discussion Notes 14/3, International Monetary Fund.
    7. Khan, Shujaat & Knotek, Edward S., 2015. "Drifting inflation targets and monetary stagflation," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 39-54.
    8. Taisuke Nakata, 2018. "Reputation and Liquidity Traps," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 252-268, April.
    9. Hloušek Miroslav, 2016. "Inflation Target and its Impact on Macroeconomy in the Zero Lower Bound Environment: the case of the Czech economy," Review of Economic Perspectives, De Gruyter Open, vol. 16(1), pages 3-16, March.
    10. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski, Economic Research Department.
    11. Séverine Menguy, 2016. "Optimal Discretionary Monetary Policy in A Potential Zero Lower Bound Framework," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(6), pages 104-126, 06-2016.
    12. Hartmann, Matthias & Conrad, Christian, 2014. "Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100477, Verein für Socialpolitik / German Economic Association.
    13. Hałka & Szafranek, 2016. "Whose Inflation Is It Anyway? Inflation Spillovers Between the Euro Area and Small Open Economies," Eastern European Economics, Taylor & Francis Journals, vol. 54(2), pages 109-132, March.
    14. Guido Ascari & Argia M. Sbordone, 2014. "The Macroeconomics of Trend Inflation," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 679-739, September.
    15. Peter Tulip, 2014. "Fiscal Policy and the Inflation Target," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 63-96, June.
    16. repec:bla:metroe:v:68:y:2017:i:4:p:777-791 is not listed on IDEAS
    17. Jean-Baptiste Michau, 2014. "Monetary and Fiscal Policy in a Liquidity Trap with Inflation Persistence," Working Papers hal-01089192, HAL.
    18. repec:mes:eaeuec:v:54:y:2016:i:2:p:109-132 is not listed on IDEAS
    19. Michael Weber & Daniel Hoang & Francesco D'Acunto, 2015. "Inflation Expectations and Consumption Expenditure," 2015 Meeting Papers 1266, Society for Economic Dynamics.
    20. Alfred Duncan & Charles Nolan, 2015. "Objectives and Challenges of Macroprudential Policy," Working Papers 2015_22, Business School - Economics, University of Glasgow.
    21. Fredrik Wulfsberg, 2016. "Inflation and Price Adjustments: Micro Evidence from Norwegian Consumer Prices 1975-2004," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 175-194, July.
    22. repec:wly:jmoncb:v:49:y:2017:i:4:p:767-806 is not listed on IDEAS
    23. Canuto, Otaviano & Nallari, Raj & Griffith, Breda, 2014. "Sluggish Postcrisis Growth: Policies, Secular Stagnation, and Outlook," World Bank - Economic Premise, The World Bank, issue 139, pages 1-10, April.
    24. Dario Pontiggia, 2016. "A Note on Intrinsic Inflation Persistence and the Optimal Inflation Rate," Journal of Reviews on Global Economics, Lifescience Global, vol. 5, pages 248-253.
    25. Michal Franta & Tomas Holub & Petr Kral & Ivana Kubicova & Katerina Smidkova & Borek Vasicek, 2014. "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic," Research and Policy Notes 2014/03, Czech National Bank, Research Department.

    More about this item

    Keywords

    Inflation; Monetary policy; Inflation target;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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