Jordan WeissmannVerified account

@delong Just curious: why was a 2% inflation target a failure of foresight?

.@greg_ip (1) Back at Jackson Hole in 1992, LHS’s and my point that an inflation target much less than 5%/year had the strong drawback of

.@greg_ip (2) making it likely that we would have nasty experiences at the zero lower bound was countered. It was countered by people saying

.@greg_ip (3) that even if adverse shocks did drive the Fed to the ZLB sometime, such excursions to the ZLB would be rare and short.

.@greg_ip (4) Confidence in the durability of the “Great Moderation”, and the consequent belief that we did not need to worry about what

.@greg_ip (5) might happen in what @ojblanchard1 calls “dark corners” was, in retrospect—and some of us thought in prospect—very wrong. It

.@greg_ip (6) was, I think, a major element in what led the economics department to put itself in a position where it got itself schlonged

.@greg_ip (7) by reality since 2005 or so…