There are differing views on studies of the long-term decline in real interest rates and their monetary policy implications. [13] It would appear appropriate, at ﬁrst glance, for central banks to raise their targeted inﬂation rate quite sharply – as sharply as real interest rates have gone down. This would restore some of the lost interest rate policy scope, so the thinking goes.
Yet it's not as simple as that! I have already, on previous occasions, expressed my doubts about raising the target rate sharply. I’d like to highlight three reasons for this.