by Summary:
On his blog, Ben Bernanke weighs the pros and cons of negative (nominal) interest rates vs. a higher inflation target to create monetary “policy space.” His main points are: Lower rates work immediately. In contrast, a higher inflation target only works once agents’ expectations adjust. A higher target may not be politically tenable a thus, not be credible. In contrast, “institutional changes … [such] as eliminating or restricting the issuance of large-denomination currency, could expand the scope for negative rates.” Both negative rates and higher inflation have negative side effects. But the side effects of negative rates would materialize only during bad recessions. There are reasons to expect that higher inflation would impose a relatively larger burden on the “poor” while negative interest rates would impose a relatively larger burden on the “rich.” The political risks for the Fed associated with a higher inflation target may be substantial.
Topics:
Dirk Niepelt considers the following as important: Inflation target, Interest Rate, Negative interest rate, Notes, Policy space
This could be interesting, too:
On his blog, Ben Bernanke weighs the pros and cons of negative (nominal) interest rates vs. a higher inflation target to create monetary “policy space.” His main points are: Lower rates work immediately. In contrast, a higher inflation target only works once agents’ expectations adjust. A higher target may not be politically tenable a thus, not be credible. In contrast, “institutional changes … [such] as eliminating or restricting the issuance of large-denomination currency, could expand the scope for negative rates.” Both negative rates and higher inflation have negative side effects. But the side effects of negative rates would materialize only during bad recessions. There are reasons to expect that higher inflation would impose a relatively larger burden on the “poor” while negative interest rates would impose a relatively larger burden on the “rich.” The political risks for the Fed associated with a higher inflation target may be substantial.
Topics:
Dirk Niepelt considers the following as important: Inflation target, Interest Rate, Negative interest rate, Notes, Policy space
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On his blog, Ben Bernanke weighs the pros and cons of negative (nominal) interest rates vs. a higher inflation target to create monetary “policy space.” His main points are:
- Lower rates work immediately. In contrast, a higher inflation target only works once agents’ expectations adjust. A higher target may not be politically tenable a thus, not be credible. In contrast, “institutional changes … [such] as eliminating or restricting the issuance of large-denomination currency, could expand the scope for negative rates.”
- Both negative rates and higher inflation have negative side effects. But the side effects of negative rates would materialize only during bad recessions.
- There are reasons to expect that higher inflation would impose a relatively larger burden on the “poor” while negative interest rates would impose a relatively larger burden on the “rich.”
- The political risks for the Fed associated with a higher inflation target may be substantial.