Europe's inflation-target...

Recently Ben Bernake, the former Fed-chief, pointed-out in the Economist (magazine) that inflation targeting in the US failed to reinforce inflation and inflationary expectations despite more money-supply and the zero-lower-bound when the GDP is still undershooting the potential growth. An important question that comes to the mind that why the Fed has committed inflation? From my side, inflation is a signal for wage and demand increase which would attract more investment and employment, and growth. However, inflationary-expectations make people expect inflation which increases their savings and more savings turn spending or consumption (today) low. People would save more and inflation would go down. However, if people expect deflation they would save less and it might increase inflation. Therefore, the Fed so far has committed inflation when its inflation-targeting is working against spending now. In another way, the Fed has committed itself for more money-supply and income, but it has also targeted inflation. Therefore, it is giving both signals, of increasing income and of inflation, which might create confusion among the agents and when the future is uncertain you save more. The signals are mixed. The Fed is doing and undoing its job at the same-time. Nevertheless, deflation would make people spend also because supply is limited and might increase inflation when demand overtakes supply. ECB is trying to repeat QE in Europe but this time it should abandon inflation-targeting to make people spend and save little with a little deflationary bias in the economic-policies. Deflationary-expectations would also infuse confidence in the economy’s budgets, both, micro and macro. It would increase demand when money-supply and wages increase...