Rugoz wrote:- No. If you have, for example, a baseline inflation rate of 2% and a real interest rate of 2%, the nominal interest rate is 4%. Hence, you can lower the real interest rate to -2% by lowering the nominal interest rate to 0%. You cannot go below 0%, or at least not much, because then people would start hoarding actual PHYSICAL cash. With a baseline inflation rate of 0%, you could only lower the real interest rate to 0% before hitting the zero lower-bound. In the absence of PHYSICAL cash, central banks would have a 0% inflation target.
I don't see what you are disagreeing with here. I agree with what you are saying, but that doesn't change the fact that 2% inflation is a magic number. NO one in the fed can answer why it's 2% with empirical evidence, They cannot explain why 2% might be better than a say a 3%, or a 4%, or a 5% target.
Rugoz wrote:- The FED doesn't officially have a target, but in any case, 2% was enough for a long time, because there was enough room to adjust to real interest rate downwards. Now there isn't, but central banks have found other ways to stimulate, namely through long-term interest rates with QE. In that sense the target lost its relevance to a degree.
Sure, but it's taken as the de facto target. Again, pointing to the fact that 2% is basically a magic number that seems to work.
Again, the point of having some inflation is so that people don't sit on their money and either spend it or invest it (i.e. not hoard it). This statement does not contradict anything you've said (which I agree with your statements).
This would apply to both physical and digital cash. 50% of money is digital these days. That's maybe hte one area I disagree with your statement. This isn't just about physical cash. It's about all cash, and you can have inflation with digital money.