Charles Goodhart
speaker
39 appearances
1 recordings
1 series
first heard Dec 2010
last heard Dec 2010
Charles Goodhart’s voice in public audio — every appearance, attributed to the second.
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Well, in a sense, it's as low as you can reasonably get, and it's still leave sort of the flexibility of adjustment that having a small amount of inflation actually gives you.
And it really got started when New Zealand started this inflation target game at the end of the 1980s.
And when we began, which was way back in 92, 93,
The inflation target we set there was actually 1 to 4, with a midpoint at 2.5.
And that was for the RPI.
The price index, that's right.
And that effectively stayed until we shifted from the RPI to the CPI, the consumer price index.
Because if you try and set it at 0, you've got to have certain prices going down.
And if prices are going down, you've got to have wages going down.
And people don't like their wages going down.
And there's generally a belief that
that a small degree of inflation sort of eases the adjustment mechanism.
There's another point which is also very relevant, which is that you can't go below zero interest rate.
And that means that if you want to have interest rates which are very low and which can lead the economy into greater expansion, you want to have inflation
being capable of being slightly greater than the level of nominal interest rates that you set.
You couldn't do that if the inflation rate was zero.
No.
What happened was that central banks had two objectives.
They had a price stability objective, which is effectively the equivalent of having this inflation target, and they had a financial stability objective.
And they tended to think before this crisis that if you achieve the price stability objective, that financial stability would be achieved sort of quasi-automatically as well.
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