not bad……

I didn’t agree with you first, but last paragraph makes sense for me…

Yes, I agree. However, I don’t agree that the relative price of labour will always be falling – if the relative price of labour is rising inflation actually moves us further away from the optimal set of relative prices, and so is a cost – as they are sticky upwards as well (although not to the same degree admitadly).

I guess I’m not convinced that inflation “oils the wheels” of industry as much as the Wikipedia authour does.

“Sure other prices could adjust to lower real wages, but you’re putting a lot of faith on the central bank to recognize that this is a price level adjustment and not a increase in inflation.”

I thought that a 1% target would give them sufficient room to move given the uncertainty about whether we are seeing a relative or general price shift – isn’t that what the RBNZ used for a long time (a 0-2% band, mid-point is 1%).

I may have over-sold my position here, I’m not trying to say we should go for anything far different from the current establishment in terms of targets. I was under the impression a 1% target was fairly standard – especially when used in conjunction with other core measures.

Furthermore, I haven’t actually mentioned the size of a target yet in posts, as I haven’t discussed trade-offs. I am happy to talk with you about targets and re-evaluate my own position.

Why don’t you write a post on contemporary monetary policy (or at least a blog comment) 🙂