Why Central Banks Settled on Two Percent
The inflation target that governs borrowing costs around the world was not derived from any economic law. It began as an improvised political comment in New Zealand. This episode traces how two percent spread across global central banking, and why policymakers refuse to abandon it.
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New Zealand invented the two percent inflation target after an off-the-cuff television interview in nineteen eighty-eight.
Central bank governors in New Zealand initially faced dismissal if they missed their inflation targets.
A two percent target gives central banks room to cut interest rates before hitting zero.
Measurement quirks cause official inflation gauges to overstate actual living cost increases.
Economic studies suggest the optimal inflation rate is actually closer to zero point six percent.
Central banks resist changing the two percent benchmark to protect their public credibility.
- 01Intro1 min
- 02The Accidental Anchor in Wellington3 min
- 03The International Contagion3 min
- 04The Economic Logic of Two Over Zero3 min
- 05The Credibility Trap and the Modern Debate2 min
- 06Outro1 min
- The Fed’s inflation target comes from a casual remark on New Zealand TV
- Why are central banks insisting on a 2% inflation target, a percentage that was born in New Zealand?
- Speech1999 07 01
- The “Rogernomics” effect | Equilibrium
- nber.org
- Inflation targeting voodoo
- Don't change the Policy Targets Agreement – DonBrash.com
- The origin of 2 inflation target
- Why the 2 inflation target
- Cj17n1 3.pdf
- History of Policy Targets Agreement in New Zealand
- Policy targets agreements.pdf
- Information archivée dans le Web | Information Archived on the Web
- Why the Bank of Canada sticks with 2 percent inflation target | Brookings
- Inflation Targeting—A Matter of Time
- What Does "Below, but Close to, 2 Percent" Mean? Assessing the ECB's Reaction Function with Real-Time Data
- Look back consensus statement
- Why the 2% Inflation Target Exists: A 1988 TV Interview · Enrico Rubboli
- The Fed and Inflation: Origins of the 2 Percent Target Rate
- bundesbank.de
- A Roadmap for the Federal Reserve's 2025 Review of Its Monetary Policy Framework
- Is the U.S. in an Above-Target Inflation Regime?
- An overview of the ECB’s monetary policy strategy - 2025
- Two per cent inflation target
- Is 2 percent too low?: Rethinking the Fed’s arbitrary inflation target to avoid another Great Recession
- Why the Fed should lift its 2% inflation target
- econstor.eu
- European Central Bank updates monetary policy strategy
- The feds 2 inflation target is no longer enough
- The Fed Should Carefully Aim for a Higher Inflation Target
- What lessons from the inflation of the 2020s should the Federal Reserve remember when it revisits its policy framework? | Brookings
- Asking the Fed to adjust its inflation target would be like waving a Pride flag at a DeSantis rally, Paul Krugman says
- The Fed does listen: How it revised the monetary policy framework | Brookings
- NEWS BRIEF 02 01 25.pdf
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