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Comment by ctl

My understanding is there are two reasons you want inflation:

(1) Inflation means real interest rates can go negative, which means it's harder to get stuck at the zero lower bound (as we are today).

(2) Wages are sticky, i.e. workers fight very hard against having their wages reduced. When there's inflation you can effectively cut wages by giving raises below inflation. Without inflation it's very hard to cut wages, and the economy becomes brittle.

parent ctl 11 years ago

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