Economic View - How a Little Inflation Could Help a Lot - NYTimes.com.
Interesting concept regarding monetary focus on inflation. Many people believe, including me, that the key to the emergence from the recessions of the early 80's was Paul Volcker's commitment to reducing inflation. In this case, Sumner is proposing the Fed focus on creating inflation - at least to the extent that it commit to maintaining inflation at 2 to 3%. In this economy, that would mean creating inflation to counter the deflationary trend.
While attractive as an idea, modest inflation is better than deflation, the concern would center on the Fed's ability to maintain the target without overshooting. Higher inflation isn't attractive either. Managing expectations to create a self-fulfilling prophecy is a daunting effort. Sort of like herding cats.
Interesting concept regarding monetary focus on inflation. Many people believe, including me, that the key to the emergence from the recessions of the early 80's was Paul Volcker's commitment to reducing inflation. In this case, Sumner is proposing the Fed focus on creating inflation - at least to the extent that it commit to maintaining inflation at 2 to 3%. In this economy, that would mean creating inflation to counter the deflationary trend.
While attractive as an idea, modest inflation is better than deflation, the concern would center on the Fed's ability to maintain the target without overshooting. Higher inflation isn't attractive either. Managing expectations to create a self-fulfilling prophecy is a daunting effort. Sort of like herding cats.
