“Today, years of ultra-low inflation are firmly embedded in the public psyche. This implies that even with rapid economic normalization, pent-up demand and large fiscal stimulus will not trigger an immediate spike in inflation. But if politicians undermine central-bank independence and prevent a timely normalization of policy interest rates, even deeply ingrained low-inflation expectation could fray. The other long-term inflation risk is subtler, but potentially even harder to forestall. Many people are vastly more skeptical about globalization today than they were three decades ago. A reversal of globalization could have a big impact on inflation.” (Kenneth Rogoff, March 2021, “Are inflation fears justified?”) Massive fiscal and monetary stimulus programs in the U.S. and other advanced economies are fuelling a raging debate about whether higher inflation could be just around the corner. What are the author’s views on the dangers of inflation in both near and longer terms? What are the economic theories behind these views? Explain.

Answer rating: 100% (QA)

The author argues that in the near term inflation may not increase significantly even with large fis... View the full answer