Tackling ‘dead-end’ monetary policy – Central Banking



A 1% inflation target should not be feared

The current monetary policy challenge could be defined as follows: if we accept, as central bankers do, that inflation – which now stands at around 1.0–1.5%, ie, slightly below the 2% target – is a major problem, the only possible way forward in their view would be to ease monetary policy until the target is met. But is this justified and reasonable?

Why should the 2% target be the absolute guide to monetary policy? Does this figure reflect the balance that should underlie the notion of

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