This is from Christina Romer and David Romer “The Zero Lower Bound in Practice” (PDF, via DeLong).
What the Fed needs to be saying is something like “we’ll keep interest rates low even if inflation goes above our long-term target until full employment is restored” or “we’ll keep interest rates low through the end of 2014 no matter what happens” or “we have a new catch-up Nominal GDP target” or some other phrase designed to anchor expectations around the idea that in the medium term we’ll see either growth or inflation, but definitely not nominal stagnation. If everyone knows that growth or inflation are the options on the table, then everyone will be inclined to shift their portfolios in favor of riskier assets and real goods and services. That ought to produce real growth. The current statement is supposed to provide clarity, but it’s actually quite ambiguous.
