Economist's View: Should We Use Above-Normal Inflation To Address Economic Ills?: The Economist asks:
Above-normal inflation has been proposed as a solution (or salve) to a number of the rich world's economic problems. In conjunction with financial repression, it could help erode sovereign debt loads. In the euro area, differential inflation could facilitate rebalancing. It could help lower real interest rates in economies up against the zero lower bound, and it could help facilitate real wage adjustments in economies plagued by nominal wage stickiness. Of course, there are risks to higher inflation, including efficiency costs and the possibility that "de-anchored" inflation expectations could be difficult and costly to contain.
Will the rich world use above-normal inflation as a way to address economic ills? Should it?
Here are the responses, including mine:
- We need a normal price level - Brad DeLong
- Better to renege on citizens than on bondholders - Ajay Shah
- There is little scope for catch-up inflation - John Makin
- Higher inflation would only increase "short-termism" - Michael Heise
- Higher inflation might provide Europe a short but costly reprieve - Gilles Saint-Paul
- More inflation would help, but probably won't be forthcoming - Mark Thoma