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The conventional framework of monetary policy rests on the idea that we only need one instrument (the federal funds rate) to reach our one target
The conventional framework of monetary policy rests on the idea that we only need one instrument (the federal funds rate) to reach our one target (2% inflation). One popular policy proposal that stays within this one instrument, one target framework is to raise the target inflation rate to 4% (extend the range of the target). Why might this proposal not be very useful right now? In other words, what do you think the impact of raising the target for the rate of inflation to 4% would do?
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