alt Hacker NewsI believe the broader reason for an inflation target is to increase the value of "doing something" as opposed to "doing nothing" with money. Of course, like most policies, this acts on people with way too much of it and skews the perception of control and locus of control to those entities with too much.
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siruwastaken • today at 4:35 PM
Not to reply against you, just to add clarification. This is the reason why a slightly positive inflation rate is normally targeted. Theoretically, it would be entirely possible to target 0% inflation, but then you are so close to possible deflation, that most people would simply save up money instead of buying things from the economy.
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That's a bit of falacy. If inflation target were 0%, people would still have an oportunity cost of doing nothing compared to deposits, bonds and other "zero risk" investments. You just stop punishing people that has their wealth in form of cash savings.
2% is an arbitrary number that just looks good and seems to work. The issue is that that target is very much not set into stone, as central banks often disregard or take too long to take action when inflation shoots up. And never, ever do they try to compensate afterwards with a lower target for a time.
You can have a government spend way beyond its income making inflation spike, eroding their own debt at the cost of cash savings purchase power and the central bank just sit put and wait until inflation runs too hot to then increase rates that then cut way before inflation is on target. As we are having right now in basically every country on earth.