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level targeting is the ideal but in its absence this is a good second best (depending on how strict their intentions are, this comes out to level targeting anyway 1/n
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a key problem with past monetary policy has been an asymmetric response, as an institution, to low vs high inflation, even under high unemployment (so missing both targets) 2/n
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One more explanation: loans and salaries and stuff are all in nominal dollars (not inflation adjusted) and economies run well at nominal GDP growth around 5%-7%. So if there’s a recession you don’t want to undershoot your previous trajectory. So inflation helps you get back.
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The idea is you want the level of gdp to consistently grow and you error correct with extra inflation to get back to it. Scott Sumner wrote a ton on this on his blog after the financial crisis at http://themoneyillusion.com .
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