Ryan Avent: Business cycles: Demand more inflation:
There is a parsimonious explanation for the economy's behaviour sitting right in front of us: that inflation has been relatively stable because the Fed has targeted stable inflation, and the Fed's choice not to raise inflation higher—-and thereby reduce the real interest rate further—-accounts for continued high unemployment. That should be the null hypothesis, and I'm not sure on what grounds Mr Hall rejects it…. As Mr Hall acknowledges, the prevailing view of what to do in the face of a liquidity trap—-commit to making up lost nominal ground or, as some would have it, "promise to be irresponsible" and allow inflation above target for a time even after unemployment returns to "normal" levels—-seems pretty compelling. Perhaps if a central bank actually gave it a try we'd have a better sense of just how many of the questions addressed by Mr Hall actually need to be answered.