In such an environment, avoiding inflation to settle at too low levels is of utmost importance as it helps preserve the macroeconomic stabilization capacity of the central bank’s nominal policy rate instrument. Were we to allow trend inflation to settle below pre-crisis levels and hence below our price stability definition, it would imply even lower nominal interest rates in steady state.
This means that, faced with negative shocks, the central bank would have a smaller margin to reduce rates, so recessions might last longer and inflation would recover more slowly. True, faced with the lower bound, the central bank could use non-standard measures more often.