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Saskatchewan | I found this little blurb awhile back describing why the central banks target a 2% inflation rate over a 0% inflation rate. It's only three pages so I recommend reading it. I have long advocated a 0% target inflation rate for the central banks. I personally disagree with their reasons listed; but I do understand that wage rigidity has a very large psychological impact on people. (We are unwilling to make less next year compared to last year; even though our purchasing power is most likely is falling).
They give three reasons:
"Why does the Bank aim for a moderate amount of inflation rather than no inflation? The reasons usually given for not targeting an inflation rate closer to zero focus on three issues: (i) problems caused by the constraint that interest rates cannot fall below zero; (ii) difficulties in measuring inflation accurately; and (iii) downward wage rigidities that could affect labour market adjustment."
http://www.bankofcanada.ca/wp-content/uploads/2010/11/why_canada_in... | |
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What in the WORLD is the FED doing?!?
