IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

The long-run costs of moderate inflation

  • Gregory D. Hess
  • Charles S. Morris

Long-run price stability is generally considered to be a primary goal of monetary policymakers in many countries. One reason policymakers care about inflation is that it can harm economic performance. Numerous studies of the impact of inflation on economic performance have focused on whether increases in inflation reduce economic growth in the long run These studies have found that prolonged high inflation does in fact reduce economic growth, but they were not able to detect a significant long-run relationship between real growth and low or moderate inflation. Because anti-inflationary policies typically have short-run costs, such as higher unemployment and slower economic growth, the results from these studies may lead people to ask whether such policies are appropriate when inflation is low or moderate.> Hess and Morris contend that anti-inflationary policies may be appropriate, even if low to moderate long-run inflation does not reduce long-run growth, if inflation harms the economy in other ways. Three potentially harmful consequences of inflation are considered: (1) inflation uncertainty, (2) real growth variability, and (3) relative price volatility. These consequences are costly because they reduce economic efficiency and therefore the level of economic output and consumer welfare.> The authors discuss the costs of inflation uncertainty, real growth variability, and relative price volatility, and examine their empirical relationship with inflation. They show that inflation uncertainty, real growth variability, and relative price volatility all tend to rise as long-run inflation rises from low to moderate levels. As a result, they conclude that policymakers may find it justifiable to pursue anti-inflationary policies even when inflation is low.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (1996)
Issue (Month): Q II ()
Pages: 71-88

in new window

Handle: RePEc:fip:fedker:y:1996:i:qii:p:71-88:n:v.81no.2
Contact details of provider: Postal: One Memorial Drive, Kansas City, MO 64198
Phone: (816) 881-2254
Web page:

More information through EDIRC

Order Information: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:1996:i:qii:p:71-88:n:v.81no.2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.