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

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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 2014/092, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/092
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    References listed on IDEAS

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    1. 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?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(4), pages 1371-1406.
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