Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

February 1996 Inflation limits economic growth by reducing the efficiency of investment rather than its level. An effective way of achieving low inflation is to establish an independent central bank. De Gregorio reviews the theory and evidence on inflation and growth and provides additional empirical evidence for a large cross-section of countries. The evidence, he reports, suggests a robust negative relationship between inflation and growth. He argues that inflation limits growth mainly by reducing the efficiency of investment rather than its level. But this finding is difficult to explain using traditional theories that rely on the effects of inflation on employment, which are not supported by the data. Explanations focusing on the effects of inflation on the allocation of talents and the functioning of financial markets may help in understanding better the long-run relationship between inflation and growth. De Gregorio also reviews the theoretical and empirical literature on how central banks affect inflation and output growth. An independent central bank can be effective in reducing inflation if the public perceives that it is tough on inflation. But inflation persists because the cost of reducing it is high -- the most evident cost being the loss of output from disinflation. De Gregorio concludes that although serious progress has been made in recent years in assessing empirically how central banks affect macroeconomic performance, the results are still inconclusive. The empirical evidence shows a negative correlation between inflation and central bank independence, especially in OECD countries, but the effects on growth are less conclusive. It is fair to say that the bulk of the evidence suggests that central bank independence produces lower inflation at no real costs. This paper -- a product of the Macroeconomics and Growth Division, Policy Research Department -- is part of a larger effort in the department to examine the determinants of economic growth.

Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

This book brings together a large body of Cukierman's research and integrates it with recent developments in the political economy of monetary policy.