Raising inflation targets may lower neutral rate – Boston Fed paper

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Raising the Federal Reserve’s inflation target might lower the equilibrium interest rate, a paper published by the Federal Reserve Bank of Boston finds.

Raising the target might therefore be a “less effective” way of reducing the chance of hitting the zero lower bound than some current research suggests, Christopher Cotton says.

“Standard macroeconomic models commonly assume flexible prices, a representative agent, or both,” Cotton says. “With any of these assumptions, the equilibrium real

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