BIS Review 95/2008  5  As Figure 3 shows, all inflation-targeting central banks in developed countries tend to cluster around a fairly narrow range of target numbers very similar to New Zealand’s (emerging economies tend to have slightly higher ranges).
The lower bound of 1 percent is there because of the danger of deflation, while the upper bound reflects the evidence that sustained inflation above around 3 percent hurts growth. Alan Greenspan said that price stability exists when people do not factor inflation into their decisionmaking, and research evidence suggests that a numerical target below 3 percent accords well with this idea.