Letter to Janet Yellen and the Board of Governors
Monetary policy in a low interest rate world
Authors:Michael T. Kiley, John M. Roberts
From: Federal Reserve Board – BrookingsIn economies where agents have chronic pessimism during times of recession, an increase of the inflation target to 4 percent, argue De Grauwe and Ji, will enable central banks to preserve their ability to stimulate the economy.
Animal spirits and the optimal level of the inflation target
By: Paul De Grauwe, Yuemei Ji – LSE, UCL
Who disagrees
Negative rates and higher inflation targets can be considered as alternative methods for pushing the real interest rate further below zero. Bernanke compares the two options on four criteria: ease of implementation, costs and side effects, distributional effects, and political risks. He concludes that it is not clear why a higher inflation target would be a preferable to negative rates.
Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates?
By: Ben Bernanke – Brookings
Cecchetti and Schoenholtz’s argument against raising the inflation target is loss of credibility: they believe that long-term inflation expectations will be destabilized and a heightened uncertainty over further similar changes in the future will lower growth.
The case for a higher inflation target gets stronger
By: Stephen G. Cecchetti, Kermit L. Schoenholtz – Brandeis University, New York University
R-star wars
In a conference held in May 2017 at Stanford University’s Hoover Institution, Volker Wieland, chair of monetary economics at Goethe University of Frankfurt and a member of the German Council of Economic Experts debated with John C. Williams, president and chief executive officer of the Federal Reserve Bank of San Francisco whether r-star has decreased.
R-Star Wars
By: John Taylor – Stanford University
