Kolmapäev, 24. märts 2021 kell 11.00
Matthias Rottner (European University Institute), co-authors Francesco Bianchi, Leonardo Melosi
Hitting the Elusive Inflation Target
Since the 2001 recession, average core inflation has been below the Federal Reserve’s 2% target. This deflationary bias is a predictable consequence of the current symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to which the central bank responds less aggressively to above-target inflation corrects the bias, improves welfare, and reduces the risk of deflationary spirals - a pathological situation in which inflation keeps falling indefnitely. This approach does not entail any history dependence or commitment to overshoot the inflation target and can be implemented with an asymmetric target range.
Keywords: Deflationary bias, asymmetric rules, opportunistic reflation, welfare, natural rate, zero lower bound, disanchoring of inflation expectations, inflation targeting, liquidity traps, macroeconomic uncertainty.