Is inflation too low?
Inflation, as measured by the Consumer Price Index, seems to have settled at an annual rate of about 2 percent. Is that rate too low? In this article, William Poole, the president of the Federal Reserve Bank of St. Louis, states his belief that the Federal Reserve's target should be zero inflation, abstracting from measurement errors in the price indices. A zero rate would maximize the credibility of monetary policy and minimize distortions in the economy arising from uncertainty over the rate of inflation and from the tax code. One argument against zero inflation is that relative wages adjust more easily in an economy with a low, but positive, rate of inflation. This argument is not well supported in economic theory, and the evidence for it is weak. A second argument is that monetary policy may be ineffective at times because the nominal interest rate cannot fall below zero. This constraint is unlikely to be important in practice. The need for a negative real interest rate, which is possible only with positive inflation, will be much less at a zero rate of inflation because the economy will be more stable.
Volume (Year): (1999)
Issue (Month): Jul ()
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.stls.frb.org/research/order/pubform.html Email: |
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.:
- Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
- Robert J. Barro, 1996.
"Inflation and growth,"
Federal Reserve Bank of St. Louis, issue May, pages 153-169.
- Martin S. Feldstein, 1999.
"Capital Income Taxes and the Benefit of Price Stability,"
in: The Costs and Benefits of Price Stability, pages 9-46
National Bureau of Economic Research, Inc.
- Martin Feldstein, 1997. "Capital Income Taxes and the Benefit of Price Stability," NBER Working Papers 6200, National Bureau of Economic Research, Inc.
- James Bullard & Steven Russell, 1998.
"How costly is sustained low inflation for the U.S. economy?,"
1997-012, Federal Reserve Bank of St. Louis.
- James B. Bullard & Steven Russell, 2004. "How costly is sustained low inflation for the U.S. economy?," Review, Federal Reserve Bank of St. Louis, issue May, pages 35-68.
- Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
- Erica L. Groshen & Mark E. Schweitzer, 1996.
"The effects of inflation on wage adjustments in firm-level data: grease or sand?,"
9, Federal Reserve Bank of New York.
- Erica L. Groshen & Mark E. Schweitzer, 1994. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Working Paper 9418, Federal Reserve Bank of Cleveland.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:1999:i:jul:p:3-10:n:v.81no.4. 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: (Anna Xiao)
If references are entirely missing, you can add them using this form.