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A Healty Dose Of Inflation Essay

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Below is an essay on "A Healty Dose Of Inflation" from Anti Essays, your source for research papers, essays, and term paper examples.

LAST week, IMF chief economist Olivier Blanchard released a staff position paper (PDF) with Giovanni Dell'Ariccia and Paulo Mauro examining the tenets of macroeconomic faith from before the crisis and suggesting ways that they might be in need of tweaking, given what we've learned from crisis and recession. Among the sacred cows being sized up for butchering is the importance of an inflation rate that is both stable and low—generally taken to mean 2% or below. Perhaps, Mr Blanchard says, this isn't such a good idea after all. Here's his reasoning:
When the crisis started in earnest in 2008, and aggregate demand collapsed, most central banks quickly decreased their policy rate to close to zero. Had they been able to, they would have decreased the rate further: estimates, based on a simple Taylor rule, suggest another 3 to 5 percent for the United States. But the zero nominal interest rate bound prevented them from doing so. One main implication was the need for more reliance on fiscal policy and for larger deficits than would have been the case absent the binding zero interest rate constraint.
It appears today that the world will likely avoid major deflation and thus avoid the deadly interaction of larger and larger deflation, higher and higher real interest rates, and a larger and larger output gap. But it is clear that the zero nominal interest rate bound has proven costly. Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions.
Monetary policy is one of the few countercyclical tools that nearly every economist can get behind, and when inflation rates are kept persistently close to zero the effectiveness of monetary policy is limited. Paul Krugman notes that the above statement is interesting not just because Mr Blanchard is thinking along these lines, but because the IMF is releasing these...

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"A Healty Dose Of Inflation". Anti Essays. 12 Dec. 2018

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A Healty Dose Of Inflation. Anti Essays. Retrieved December 12, 2018, from the World Wide Web: http://snehaedu.com/free-essays/A-Healty-Dose-Of-Inflation-62617.html