Cover; The Case for a Long-Run Inflation Target of Four Percent; Abstract; I. THE BENEFIT FROM HIGHER INFLATION; The Zero-Bound Problem; The Role of Inflation; II. FUTURE RISKS FROM THE ZERO BOUND; Historical Evidence on Interest Rates; Theoretical Research; III. OPPOSITION TO HIGHER INFLATION; Are There Costs?; Is 4% Inflation Destabilizing?; Understanding the Attitudes of Policymakers; IV. CONCLUSION; REFERENCES
Summary
"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."--Abstract
