But underneath those rosy topline numbers remained the issue of the empirical reasoning behind a 2 percent inflation target: We didn’t have any. And by the time we got to 2008, the 2 percent inflation target may have left us ill-prepared for the Great Recession. That’s according to some economists, including Ball, who have argued that a higher inflation target would have lessened the severity of the crisis. So if you have a lower expected inflation rate, you would also have a lower nominal interest rate — and therefore, less space to work with before real interest rates dip below zero. Additional research has found that, under certain conditions, pursuing a higher inflation target can actually improve economic stability.

Source: ABC News March 10, 2023 07:12 UTC