Inflation targets may have to rise, new study finds
Optimal policy would see targets rise by roughly the same amount as the decline in neutral rates
Inflation targets may have to be increased if central banks are to achieve an optimal monetary policy framework under the current low neutral rate environment, a paper published by the Brookings Institution suggests.
Central banks should increase inflation targets by almost as much as the decline in neutral rate since the financial crisis, Philippe Andrade and co-authors find.
A one percentage point decline in the neutral rate relative to the pre-crisis level of 2.5% should be accommodated by
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