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The Case for a Long-Run Inflation Target of Four Percent

Author

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  • 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, 2014. "The Case for a Long-Run Inflation Target of Four Percent," IMF Working Papers 14/92, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/92
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    References listed on IDEAS

    as
    1. Michelle L. Barnes & Fabià Gumbau-Brisa & Denny Lie & Giovanni P. Olivei, 2011. "Estimation of forward-looking relationships in closed form: an application to the New Keynesian Phillips curve," Working Papers 11-3, Federal Reserve Bank of Boston.
    2. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
    3. Olivier Coibion & Yuriy Gorodnichenko & Johannes Wieland, 2012. "The Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the Zero Lower Bound?," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1371-1406.
    4. Glenn D. Rudebusch, 2009. "The Fed's monetary policy response to the current crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may22.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. More Support for a Higher Inflation Target
      by noreply@blogger.com (Carola) in Quantitative Ease on 2016-08-16 16:24:00

    Citations

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    Cited by:

    1. Kleczka, Mitja, 2015. "Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone," MPRA Paper 67228, University Library of Munich, Germany.
    2. Mengus, Eric & Barthelemy, Jean, 2016. "The Signaling Effect of Raising Inflation," Les Cahiers de Recherche 1162, HEC Paris, revised 09 Jan 2017.
    3. Williams, John C., 2017. "Preparing for the Next Storm: Reassessing Frameworks & Strategies in a Low R-Star World," Speech 176, Federal Reserve Bank of San Francisco.
    4. Alan Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2017. "Necessity as the mother of invention: monetary policy after the crisis," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 707-755.
    5. Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2017. "Transparency, expectations anchoring and inflation target," European Economic Review, Elsevier, vol. 91(C), pages 261-273.
    6. Arias, Jonas E. & Ascari, Guido & Branzoli, Nicola & Castelnuovo, Efrem, 2017. "Positive Trend Inflation And Determinacy In A Medium-Sized New Keynesian Model," Working Papers 17-16, Federal Reserve Bank of Philadelphia.
    7. Elif C Arbatli & Steven J Davis & Arata Ito & Naoko Miake & Ikuo Saito, 2017. "Policy Uncertainty in Japan," IMF Working Papers 17/128, International Monetary Fund.
    8. Duarte, Fernando M., 2016. "How to escape a liquidity trap with interest rate rules," Staff Reports 776, Federal Reserve Bank of New York, revised 01 Dec 2016.
    9. Philippe Andrade & Jordi Galí & Hervé Le Bihan & Julien Matheron, 2017. "The optimal inflation target and the natural rate of interest," Economics Working Papers 1591, Department of Economics and Business, Universitat Pompeu Fabra.
    10. Michael D. Bordo & Andrew T. Levin, 2017. "Central Bank Digital Currency And The Future Of Monetary Policy," Economics Working Papers 17104, Hoover Institution, Stanford University.
    11. Laubach, Thomas & Williams, John C., 2015. "Measuring the natural rate of interest redux," Working Paper Series 2015-16, Federal Reserve Bank of San Francisco.
    12. Wortmann, Marcus & Stahl, Markus, 2015. "Die MIP-Indikatoren zur Analyse von Kern-Peripherie-Strukturen in der EU," Center for European, Governance and Economic Development Research Discussion Papers 258, University of Goettingen, Department of Economics.
    13. Jean-Philippe Bouchaud & Stanislao Gualdi & Marco Tarzia & Francesco Zamponi, 2018. "Optimal inflation target: insights from an agent-based model," Post-Print hal-01768441, HAL.
    14. Michael Ehrmann, 2015. "Targeting Inflation from Below: How Do Inflation Expectations Behave?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 213-249, September.
    15. David Cobham, 2015. "Monetary Analysis and Monetary Policy Frameworks: Introduction," Manchester School, University of Manchester, vol. 83, pages 1-4, September.
    16. Eric T. Swanson, 2016. "Measuring the Effects of Unconventional Monetary Policy on Asset Prices," Central Banking, Analysis, and Economic Policies Book Series,in: Elías Albagli & Diego Saravia & Michael Woodford (ed.), Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World, edition 1, volume 24, chapter 4, pages 105-130 Central Bank of Chile.
    17. S. Dupraz, 2017. "A Kinked-Demand Theory of Price Rigidity," Working papers 656, Banque de France.
    18. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9357-7 is not listed on IDEAS
    19. Kiyutsevskaya, Anna & Narkevich, Sergei & Trunin, Pavel, 2016. "The Transformation of the Role and Tasks of the Central Bank (Monetary Authorities) in the Modern Economy," Working Papers 2136, Russian Presidential Academy of National Economy and Public Administration.
    20. repec:eee:jpolmo:v:39:y:2017:i:4:p:673-679 is not listed on IDEAS
    21. Stephane Dupraz, 2017. "A Kinked-Demand Theory of Price Rigidity," 2017 Meeting Papers 387, Society for Economic Dynamics.
    22. Jakob de Haan & Marco Hoeberichts & Renske Maas & Federica Teppa, 2016. "Inflation in the euro area and why it matters," DNB Occasional Studies 1403, Netherlands Central Bank, Research Department.
    23. Christian Pfister, Natacha Valla, 2018. "‘New Normal’ or ‘New Orthodoxy’? Elements of a Central Banking Framework for the After-Crisis," Working papers 680, Banque de France.
    24. repec:zbw:ifweej:201815 is not listed on IDEAS
    25. repec:fip:fedfel:00128 is not listed on IDEAS

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