Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?

Dabrowski, Marek

doi:10.2139/ssrn.3586434

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Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?

CASE Research Paper No. 501

53 Pages Posted: 27 Apr 2020

See all articles by Marek Dabrowski

Marek Dabrowski

Bruegel; CASE - Center for Social and Economic Research; Central European University, Department of Public Policy

Date Written: March 24, 2020

Abstract

Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the ration-ale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.

Keywords: monetary policy, inflation, inflation target, economic growth, central bank independence

JEL Classification: E31, E51, E52, E58, F62

Suggested Citation: Suggested Citation

Dabrowski, Marek and Dabrowski, Marek, Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation? (March 24, 2020). CASE Research Paper No. 501, Available at SSRN: https://ssrn.com/abstract=3586434 or http://dx.doi.org/10.2139/ssrn.3586434