edited by ISPI

The Role of Central Banks in an Unequal World: Justifying Positive Inflation Rate Targets

Sluggish GDP growth and low inflation rates have characterized the years following the financial crisis of 2008/2009, notwithstanding a huge expansion of central banks' balance sheets. Interest rates have hit the 0% nominal level (also known as the zero lower bound) and conventional monetary policy has lost traction. Many commentators argue that increasing central banks' inflation targets above the pre-crisis 2% level could help getting the economy out of the low-growth, low-inflation trap and avoid hitting the zero lower bound again in the future.

At the same time, the scientific literature struggles to justify optimal positive inflation rates in standard DSGE macroeconomic models. These models indicate that central banks should target zero or slightly negative inflation rates. In this issue, Lorenzo Menna and Patrizio Tirelli's contribution shows that once concerns for income and wealth inequality are introduced in central banks' objective function, optimal inflation rates are well above 2%. This result follows from public finance considerations, as a higher inflation rate allows shifting the fiscal burden from the poor toward the wealthy.

The paper also contributes to the debate over the redistributive effects of central banks' policies. It argues that positive inflation targets and stronger debt stabilization are indeed welfare improving, in particular for the poor.



RAstaNEWS investigates many aspects of the future of macro-economic and monetary integration in Europe, paving the way to a revised governance of the EMU, and the EU as a whole, in the wake of the debt crisis.
Our project is based on the premise that rethinking the future of macroeconomic and monetary integration in Europe requires a substantial revision and integration of the underlying macroeconomic model and a new vision about what markets and policy-makers can accomplish.
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Limited Asset Market Participation and the Optimal Fiscal and Monetary Policies

Lorenzo Menna and Patrizio Tirelli (University of Milano Bicocca) Read it here

The Comeback of Inflation as an Optimal Public Finance Tool

Giovanni Di Bartolomeo, Nicola Acocella (Sapienza University) and Patrizio Tirelli (University of Milano Bicocca) Read it here

Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty

Christian Conrad and Matthias Hartmann (Ruprecht-Karls-Universitšt Heidelberg) Read it here

Insights on the global macro-finance interface: Structural sources of risk factor fluctuations and the cross-section of expected stock returns

Claudio Morana (University of Milan Bicocca) Read it here

The oil price-macroeconomy relationship since the mid-1980s: A global perspective

Claudio Morana (University of Milan Bicocca) Read it here


RAstaNEWS organized a special session at the 5th World Finance Conference, which was held in Venice, Italy, on July 2-4th.


RAstaNews organized a special session on Macro-Financial Risk at the 46th Annual Conference of the Money, Macro, and Finance Research Group, which was held on September 17-19 September at the Durham University Business School.


PISM, one of RAstaNEWS partners, organized the Conference "EU Economic Governance in the Making: The CEE Perspective, which was held on 14 November at PISM venues in Warsaw.



RAstaNEWS is organizing its Second Annual Conference, which will be held at ISPI's headquarters on 13 March. Stay tuned for more info in the upcoming weeks!


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