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Will the US inflate away its public debt?
Faced with daunting levels of public debt, it may be tempting to inflate away the burden. Some recent research has endorsed such a policy, but this column argues that it is infeasible. The rule of thumb that suggests an inflation rate four percentage points higher would reduce debt by 20% ignores creditor composition and maturity details, even if a 6% inflation rate were achievable. The hard truth is that there is no easy way out of debt. Should the US Federal Reserve raise the inflation target from its current level of 2%? And will it? One benefit would be to make hitting the zero lower bound less likely, which ... (full story)
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