Very brilliant economists, such as Ken Rogoff, have argued that the way out of current situation is to have a decade of 4-6% inflation. Personally, I have been in shock that this approach has been advocated in such a cavalier manner. To me this is the ultimate form of embracing the "holding the tiger by the tail" and I am not sure how it squares with even weak rational expectations assumptions. But if someone as bright as Ken Rogoff, who thinks seriously about macroeconomic issues, holds this position, perhaps it demands more attention. In addition, my colleagues at GMU who I respect greatly, such as Tyler and Bryan, have said similar things about the monetary policy response to our situation.
In the end, I still don't believe this solution is a solution, and instead would sink the economy into an even worse situation. This is why the analysis of Raghuram Rajan seems to me to be more accurate.
What do you think?
HT: Chris Coyne