Tuesday, May 19, 2009

Scary line of the day 

I�m advocating 6 percent inflation for at least a couple of years. It would ameliorate the debt bomb and help us work through the deleveraging process.

Ken Rogoff, who with Greg Mankiw is advocating higher inflation. Rogoff was the IMF's chief economist until recently.

There is certainly something to be said for allowing inflation to work through a financial crisis; Charles Kindleberger thought as much. But in a world where many countries have central banks using inflation targeting, what would it mean for a central bank to explicitly raise the target for the purpose of financial stability? Presumably the inflationists would not agree with Marvin Goodfriend's comment in the article that raising inflation means you get a recession later to move the target back to 2% or what-have-you. But I'm not convinced Rogoff or Mankiw have really thought that through yet.