For advanced economies with an inflation target of around 2%, the proponents of a higher figure suggest an increase of another 2 percentage points to 4%. The idea behind this is quite straightforward: Increasing the distance from the zero interest rate bound by means of a higher average inflation rate might supposedly create more room for an expansionary monetary policy.
BIS Review 67/2010  1  However, enthusiasm for this proposal seems to be fading. One explanation for this might be that recent developments have provided reassurance that the zero interest bound does not constitute a restriction on monetary policy.