On February 11, European leaders were discussing the threat of a state insolvency in the eurozone. The next day, a paper co-authored by the chief economist of the International Monetary Fund proposed that central banks increase their inflation targets from 2 to 4 per cent.* We should not be surprised if people who are prone to conspiracy theories are beginning to see a pattern: the world will deal with the increase in private and public debt through default – directly, indirectly through inflation, or both. I myself do not believe that this is how debt reduction will in fact happen. But I am concerned by the readiness of macroeconomists to embrace higher inflation as a quick remedy.

The argument is as follows. During the recent crisis, central banks hit the zero interest rate bound. If inflation and nominal interest rates had been higher, the leeway for rate reductions would have been greater and monetary policy would have been more effective.

I disagree with the conclusion but agree with one of the premises: that discretionary fiscal policy was a disappointment during the crisis. In most countries, stimulus packages were late, badly co-ordinated and too structural. I agree that monetary policy is the better anti-crisis instrument. But it does not follow that we need higher inflation targets.