Hitting the elusive inflation target

Arbeitspapier

Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of a low nominal interest rates environment. When monetary policy faces the risk of encountering the zero lower bound, in.ation tends to remain persistently below the central bank's target, even if monetary policy is currently not constrained. The deflationary bias increases if macroeconomic uncertainty rises or the natural real interest rate falls. An asymmetric rule according to which the central bank accepts longer periods of in.ation above target corrects the bias and brings inflation back on target. Adopting this asymmetric rule improves welfare and reduces the risk of self-fulfilling deflationary spirals.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2019-07

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Fiscal Policy ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Deflationary bias ; asymmetric rules ; opportunistic reflation ; welfare ; natural rate ; zero lower bound ; disanchoring of inflation expectations ; inflation targeting ; liquidity traps ; macroeconomic uncertainty ; Geldpolitik ; Deflation ; Niedrigzinspolitik ; Wohlfahrtsanalyse ; Inflationserwartung ; Inflationssteuerung ; Liquiditätsbeschränkung ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bianchi, Francesco ; Melosi, Leonardo ; Rottner, Matthias
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2019

Further information

• DOI: doi:10.21033/wp-2019-07
• Handle: http://hdl.handle.net/10419/230373
• Last update: 10.03.2025, 11:42 AM CET