Rethinking the IMF mantra of price stability

In a break with the consensus that has enveloped policy makers in institutions such as the International Monetary Fund, the IMF's Chief Economist Oliver Blanchard has written a new paper (Rethinking Macroeconomic Policy) that suggests that a relaxation of tough inflation targets and acceptance of slightly higher average inflation is needed to give macro economic policy more traction in the years ahead.

For A2 economists this is an important policy debate. Are the economic and social costs of average inflation of say 3 to 4% much higher than achieving consumer price inflation of 2%?

Here are some links to coverage of the paper.

Guardian: More inflation may be better after all, says IMF

Paul Krugman: The Case For Higher Inflation

Economist Blog: Reorienting macroeconomic policy