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To keep unemployment low, central banks should plan to raise inflation target

  • Article
  • Oct 14, 2022
  • #Economics #Inflation
Joseph Gagnon
@GagnonMacro
(Author)
www.piie.com
Read on www.piie.com
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After high inflation is defeated in the next year or two, the world risks returning to the excessive unemployment of the decades before 2020. Central banks will therefore need to pu... Show More

After high inflation is defeated in the next year or two, the world risks returning to the excessive unemployment of the decades before 2020. Central banks will therefore need to put less faith in estimates of sustainable employment based on simple linear models and adopt a more aggressive policy approach than they have in the past—one that regularly probes the limits of noninflationary job creation. In addition, a small rise in the inflation target, from 2 percent to 3 or 4 percent, would make it much easier for central banks to maintain maximum employment.

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Robin Brooks @RobinBrooksIIF · Oct 29, 2022
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Important new working paper by @GagnonMacro. The labor force participation rate among prime-age men in the US (pink) fell sharply after the Great Recession in 2008 and is almost as low as Italy (red). The big drop after 2008 says most of that decline is cyclical, not structural.
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