NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Matthias Rottner

European University Institute
Department of Economics
Villa La Fonte
Via delle Fontanelle 18
San Domenico di Fiesole
Italy

E-Mail: matthias.rottner@eui.eu
Institutional Affiliation: European University Institute

NBER Working Papers and Publications

September 2019Hitting the Elusive Inflation Target
with Francesco Bianchi, Leonardo Melosi: w26279
Since the 2001 recession, average core inflation has been below the Federal Reserve’s 2% target. This deflationary bias is a predictable consequence of the current symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to which the central bank responds less aggressively to above-target inflation corrects the bias, improves welfare, and reduces the risk of deflationary spirals—a pathological situation in which inflation keeps falling indefinitely. This approach does not entail any history dependence or commitment to overshoot the inflation target and can be implemented with an asymmetric target range.
 
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