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:
: 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....
http://www.voxeu.org/article/causes-and-consequences-persistently-low-interest-rates
