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What would be wrong with lowering the inflation target
[Pourquoi abaisser la cible d’inflation serait une mauvaise idée]

Author

Listed:
  • Philippe Andrade
  • Hervé Le Bihan
  • Julien Matheron

Abstract

According to the latest Eurosystem projections, inflation is expected to be substantially below 2 % by 2018. Some commentators contend that the Eurosystem should adjust to the “lowflation” environment and lower its inflation target. In this post, we argue that this would not be a good idea. A lower inflation target would increase the incidence of depressed output in the future, thereby dragging inflation further below this new ‘target’. Selon les dernières projections macroéconomiques de l’Eurosystème, l’inflation devrait demeurer nettement inférieure à 2 % en 2018. Certains commentateurs soutiennent que l’Eurosystème devrait s’ajuster à l’environnement d’inflation basse, et abaisser sa cible d’inflation. Cela ne serait toutefois pas une bonne idée. Un objectif d’inflation plus bas accroîtrait à terme la probabilité et la durée des épisodes de récession, entraînant ainsi l’inflation encore davantage en-dessous de cette nouvelle "cible".

Suggested Citation

  • Philippe Andrade & Hervé Le Bihan & Julien Matheron, 2017. "What would be wrong with lowering the inflation target [Pourquoi abaisser la cible d’inflation serait une mauvaise idée]," Eco Notepad (in progress) 42, Banque de France.
    • Handle: RePEc:bfr:econot:42
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