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On the Believable Benefits of Low Inflation

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Author Info
Ragan, Christopher

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Abstract

This paper reviews the existing theoretical and empirical literature addressing the benefits of low inflation. The ultimate goal is to arrive at a set of benefits in which a monetary authority can have genuine confidence. I argue that the current state of economic research—both empirical and theoretical—provides little basis for believing in significant observable benefits of low inflation such as an increase in the growth rate of real GDP. Moreover, what observable benefits do exist are unlikely to justify a policy of disinflation, even if the transitional costs of disinflation are quite moderate. I conclude that defending a policy of moderate disinflation requires more attention to be paid to the benefits of low inflation that are unobservable in familiar aggregate data. This naturally poses some policy challenges to central banks contemplating a disinflation.

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File URL: http://www.bankofcanada.ca/en/res/wp/1998/wp98-15.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 98-15.

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Length: 45 pages
Date of creation: 1998
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Handle: RePEc:bca:bocawp:98-15

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Related research
Keywords: Inflation: costs and benefits;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roderick Hill, 2000. "Real Income, Unemployment and Subjective Well-Being: Revisiting the Costs and Benefits of Inflation Reduction in Canada," Canadian Public Policy, University of Toronto Press, vol. 26(4), pages 399-414, December. [Downloadable!] (restricted)
  2. Rainer Klump, 2003. "Inflation, factor substitution and growth," Working Paper Series 280, European Central Bank. [Downloadable!]
  3. Peter Funk & Bettina Kromen, 2006. "Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve," Working Paper Series in Economics 29, University of Cologne, Department of Economics. [Downloadable!]
  4. Gerald Stuber, 2001. "Implications of Uncertainty about Long-Run Inflation and the Price Level," Working Papers 01-16, Bank of Canada. [Downloadable!]
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