Origins of the Global 2% Inflation Standard

Abstract

The 2% inflation standard emerged from the turmoil of the monetary inflation shock in the late 1980s featuring both virulent asset inflation and high goods inflation. The intellectual underpinnings stemmed from neo-Keynesian doctrine, with Stanley Fischer as a key architect and promotor. The US joined the standard in stages starting with a key FOMC meeting under Chair Greenspan in 1996 at which Governor Yellen presented the pro-case. An effective opposition to 2% did not form, and the arguments against in the contemporary literature missed the big point—targeting 2% when the natural rhythm of prices is downwards in line with digitalization and globalization would fuel economically devastating asset price booms and busts.