August 29 Bernanke Turns Timid in Krugman View of Princetonians on Japan (Bloomberg Businessweek)

Theoretical Models

Pledging to raise the inflation rate temporarily is something that may work better in theoretical models than in practice, said Dean Croushore, chairman of the economics department at the University of Richmond and a co-author with Bernanke of his textbook “Macroeconomics.”

“No central bank I know of has been able to actually manage inflation that well,” Croushore said. “Allowing inflation to rise temporarily could certainly make some bad loans good, in the past it has increased house prices at the expense of bondholders and stockholders. It would lead to a big redistribution of wealth as it did in the 1970s.”