What is the Right Inflation Target for Central Banks?

August 06, 2023

by Jonathan Newman Mises.org

Why have central banks settled on a 2 percent price inflation target? Project Syndicate asked four economists about this target and whether it is still appropriate. I’ll summarize their answers and then consider Mises’s position on “stabilization policy.”

Four Economists’ Answers to “Is 2 Percent Really the Right Inflation Target for Central Banks?”

Michael Boskin, Stanford University professor, Hoover Institution senior fellow, and former chair of the Council of Economic Advisers to George H.W. Bush, concludes that 2 percent is probably about right, mainly due to the negative consequences of a higher target. He considers whether a higher target could be maintained in a stable way as it comes with more variations in the returns to capital, less credibility regarding the price stability component of the dual mandate, and less restraint on government spending.