Robert M. La Follette School of Public Affairs
Wednesday, January 11, 2012

Economists call for higher inflation to help solve debt woes

How to Save the Global Economy: Whip Up Inflation. Now., January-February 2012, Foreign Policy

Higher inflation is the best way for the global economy to recover from the U.S. and European debt crises, given the lack of political will to increase fiscal stimulus, La Follette School economist Menzie Chinn and collaborator Jeffry Frieden of Harvard University argue in the new issue of Foreign Policy.

They suggest targeting an inflation rate of 4 to 6 percent as long as the unemployment rate remains elevated and inflation muted. "Today our highest priority should be to stimulate investment, growth, and employment," Chinn and Frieden write. "The resulting real depreciation of the dollar would stimulate production of U.S. exports and domestic goods that compete with imports, boosting American production. The United States would get faster growth, an accelerated process of deleveraging, a quicker recovery, and a firmer foundation upon which to address long-term fiscal problems."

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