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Opinion

Against unemployment targets

Against unemployment targets
May 20, 2013
Against unemployment targets

Sure, this wouldn't be the intention of such a move. Quite the opposite. The case for such a target is that, with unemployment likely to stay high for a long time, it would signal that interest rates will stay low for a long time. This would give us greater certainty about monetary policy, which could give extra confidence to businesses considering whether to invest.

I'm not sure even this is convincing. In increasing borrowers' confidence that rates will stay low, such a policy would also increase savers' fears they will do so. This could prompt them to cut spending in anticipation of lower returns.

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