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Monetary Policy in a Low‐Inflation Environment: Developing a State‐Contingent Price‐Level Target
Author(s) -
EVANS CHARLES L.
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00482.x
Subject(s) - liquidity trap , monetary policy , economics , inflation (cosmology) , mandate , monetary economics , inflation targeting , market liquidity , price of stability , price level , dual (grammatical number) , unemployment , macroeconomics , liquidity crisis , art , physics , literature , theoretical physics , law , political science
A number of academic studies find that either price‐level targeting or temporary above‐average inflation are nearly optimal policies to address a liquidity trap crisis. Still, central bankers and the public generally question whether even a temporarily higher inflation rate could be beneficial in addressing a liquidity trap or could be consistent with price stability over the longer term. At the same time, however, the Federal Reserve's projections for high unemployment and low inflation do not seem to be consistent with the best monetary policies to address the Fed's dual mandate responsibilities. Accordingly, it is useful to seriously discuss these potentially beneficial alternative policies.