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Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?

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  • Marek Dabrowski

Abstract

Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.

Suggested Citation

  • Marek Dabrowski, 2020. "Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?," CASE Reports 0501, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:report:0501
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    File URL: https://www.case-research.eu/files/?id_plik=6367
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    More about this item

    Keywords

    monetary policy; inflation; inflation target; economic growth; central bank independence;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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