Krugman questions ECB inflation target of 2%

The renowned American economist Paul Krugman expressed this Tuesday openly criticized the positions taken by central banks and questioned whether the inflation target set by the system is placed in 2%. The Nobel Prize winner in Economics found that these goals should be higher to promote economic recovery and warned of the risk of deflation if Europe continues running down the same road.

Krugman launched this message in favor of abandoning the policies of low inflation in Sintra during his speech at the forum on monetary policy in an economic context in evolution, organized by the European Central Bank (ECB). The meeting was also attended by the agency president, Mario Draghi. The American academic Krugman’s warning contradicts Draghi position , who on Monday in the same scenario, defended that approximate 2% inflation is not at issue.

The head of EU monetary policy manifested itself open to the possibility of taking measures to encourage higher prices, but stressed the importance of right timing. Krugman – that during the crisis has been characterized by severely censuring the austerity policies adopted in the EU – warned of the “trap” that the EU is heading with rates as low inflation near zero, citing Japan’s case as an example to avoid.

The 2% target outdated ” 2% could be a good target for the nineties, but it is not now,” he said economist, professor at Princeton University. In his view, the growth of aggregate demand ” would be equally inadequate ” even inflation rates at those levels, what would cause ” disappointment ” among Europeans.

Countries with low growth rates and low inflation are at risk of falling into a ” black hole ” at political and economic level, according to Krugman, a more radical “vicious circle” from which escape would be necessary ” measures of that seem to come. “

Economist admitted being aware that any proposal to raise the inflation target is met with “skepticism” by central banks, and considered that the target of 2 % has the advantage of being the default set despite the lack of scientific reasons to defend it in any context. “Central banks will not only have to promise, but must act and be aggressive,” he said.

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Posted by Shakira Subhani on May 28 2014. Filed under Business, Europe. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.