So the inflation target should be low enough to minimize these distortionary effects. At the same time, there are risks associated with very low rates of inflation, the most important being the zero lower bound (ZLB) on interest rates. The lower the inflation target, the lower the average nominal policy interest rate will be.
Therefore, the greater the likelihood that adverse shocks will push interest rates to the ZLB and hence limit the central bank’s ability to respond with conventional policy. A positive inflation rate also helps to “grease the wheels,” since it is less likely that the economy will be constrained by downward nominal wage rigidity.