ARGUING ABOUT INFLATION.

ARGUING ABOUT INFLATION. I posted here about how my long-running argument with Joe Foley about whether inflation was good or bad came to a disappointing end. We discovered that if we quantified our opinions that we were basically in agreement on a range of 3 to 4% as a healthy inflation rate. And then: “Every so often, one of us would bring up the subject and the other would sadly point out that basically we were in agreement.” I thought of this when I read this Wall Street Journal article by Bob Davis (February 12) reporting that Olivier Blanchard, the top economist for the International Monetary Fund, and two colleagues have published an article suggesting that central banks should adopt a target of 4% inflation (rather than the 2% target that most central banks have been using) so as to increase the room for monetary policy to adjust to shocks. I was especially struck by this sentence in the article: “Mr. Blanchard argues that there isn’t much difference in maintaining inflation at 2% or 4%.” Of course, there is still room for debate. Professor John Taylor says: “If you say it’s 4%, why not 5% or 6%?”