Tuesday, July 11th, 2017 2:23 pm

Inflation Target

Question A: If the Fed changed its inflation target from 2% to 4%, the long-run costs of inflation for households would be essentially unchanged.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: Raising the inflation target to 4% would make it possible for the Fed to lower rates by a greater amount in a future recession.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Disagree 3
Bio/Vote History
         
Alesina Alberto Alesina Harvard Disagree 4
Bio/Vote History
         
Altonji Joseph Altonji Yale Disagree 7
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 5
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard Did Not Answer
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Agree 6
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Disagree 2
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Disagree 9
since inflation distorts the portfolio choice, Brunnermeier & Sannikov "On the Optimal Inflation Rate" (AER PP). Also 4% can't be ignored
Bio/Vote History
         
Chetty Raj Chetty Stanford Did Not Answer
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Cutler David Cutler Harvard Agree 3
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 6
Bio/Vote History
         
Duffie Darrell Duffie Stanford Disagree 9
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 3
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 5
Assuming that the change did not also compromise the credibility of the Fed's (new) inflation target.
Bio/Vote History
         
Einav Liran Einav Stanford No Opinion
Bio/Vote History
         
Fair Ray Fair Yale Uncertain 5
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Disagree 3
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 4
If they did this now, costs would be unchanged because they have not even been able to get to 2 so not credible to promise 4
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Uncertain 1
I tend to agree but I think the evidence is more based on intuition and theory than on empirical evidence.
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Hart Oliver Hart Harvard Agree 5
I think that people can cope with low rates of inflation well, and 4% falls into that category. I wouldn't want to go much higher though.
Bio/Vote History
         
Holmström Bengt Holmström MIT Disagree 5
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Uncertain 7
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley No Opinion
Bio/Vote History
         
Judd Kenneth Judd Stanford Disagree 5
Nominal features of the tax code will drag down growth. Higher inflation may have higher uncertainty.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Uncertain 7
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Disagree 3
big retirement planning mistakes from nominal illusion would become more common&empirical regularity of more volatile inflation possible too
Bio/Vote History
         
Klenow Pete Klenow Stanford Disagree 5 Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 4
Bio/Vote History
         
Maskin Eric Maskin Harvard Uncertain 5
Even if the inflation targets are met, the answer depends on how much price indexing, etc, is done
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 4
Bio/Vote History
         
Samuelson Larry Samuelson Yale Disagree 6
If the target change leads to higher inflation (otherwise, why raise the target?), then households will bear the attendant costs.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Disagree 3
I am uncertain about the magnitude of costs at these levels of inflation.
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 2
Hard to be very confident, particularly about the durability of the target.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Agree 3
Bio/Vote History
         
Shimer Robert Shimer Chicago Disagree 6
The welfare cost of inflation is the area under the money demand curve. This implies a cost of about $60bn/yr from the proposed policy
-see background information here
Bio/Vote History
         
Thaler Richard Thaler Chicago Uncertain 1
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 6
Bio/Vote History
         
Alesina Alberto Alesina Harvard Agree 7
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 3
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 7
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard Did Not Answer
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT Agree 7
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Agree 2
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton Agree 7
provided inflation target is hit (on average)
Bio/Vote History
         
Chetty Raj Chetty Stanford Did Not Answer
Bio/Vote History
         
Chevalier Judith Chevalier Yale Did Not Answer
Bio/Vote History
         
Cutler David Cutler Harvard Agree 3
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 6
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 4
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 7
Bio/Vote History
         
Einav Liran Einav Stanford No Opinion
Bio/Vote History
         
Fair Ray Fair Yale Agree 5
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT Strongly Agree 3
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Did Not Answer
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Disagree 6
4 is not credible now. It would not give any bonus to policy making until Fed can show they could actually get to 4
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 3
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Hart Oliver Hart Harvard Agree 5
Nominal rates would be higher and so could be reduced without hitting the zero lower bound. Also real rates would be lower.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 7
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Agree 7
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley No Opinion
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 5
That is technically true, but I doubt that it would justify a higher interest rate target.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago Agree 3
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Agree 1
assumes they are on or close to target when the recession comes.
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 1 Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 4
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 5
Higher inflation rates often imply higher nominal interest rates, giving the Fed greater leeway.
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 10
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Samuelson Larry Samuelson Yale Disagree 6
We've already seen rates go as low as they can, so a higher inflation target opens up little room for lower rates.
Bio/Vote History
         
Scheinkman José Scheinkman Princeton No Opinion
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 4
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley Agree 5
Bio/Vote History
         
Shimer Robert Shimer Chicago Agree 6
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 4
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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