Must-Read: Charles Bean: Causes and Consequences of Persistently Low Interest Rates

Must-Read: So what is the argument against shifting the monetary-policy target to 4%/year PCE inflation or 6%/year nominal GDP growth again? I mean, Larry Summers and I wrote 23 years ago that the danger of hitting the zero lower bound made it potentially unwise to aim to push inflation much below 5%/year–and that was when we expected both a small equity risk premium–hence Treasury rates not far below the return on physical investment–and not a global savings glut but rather a global savings shortfall:

Charles Bean: Causes and Consequences of Persistently Low Interest Rates: “Demographic developments… the partial integration of China…

…and the associated capital outflows…. a lower propensity to invest… as a result of heightened risk aversion…. Rates should eventually return to more normal levels…. But… the time scale… is highly uncertain and will be influenced by longer-term fiscal and structural policy choices…. With current inflation targets of around 2%, episodes where policy rates are constrained by their lower bound are likely to become more frequent and prolonged… how easy it is in such circumstances to slip into a deflationary trap–and how difficult it can be to escape it….