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Remembering Inflation$
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Brigitte Granville

Print publication date: 2013

Print ISBN-13: 9780691145402

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691145402.001.0001

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Ending Inflation Without Prolonged Recession

Ending Inflation Without Prolonged Recession

Introducing Credibility

Chapter:
(p.54) Chapter 3 Ending Inflation Without Prolonged Recession
Source:
Remembering Inflation
Author(s):

Brigitte Granville

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691145402.003.0003

This chapter describes how, since the 1980s, policymakers have managed to reduce and control inflation without unacceptably adverse welfare impacts by changing the monetary policy regime in a way that subjects policy to an external rule. The record in this period suggests that policymakers and economists have arrived at a better understanding of monetary policy and on how to keep the price level low and stable, while at the same time keeping real growth high and stable. This understanding incorporates three key beliefs. First, there is a natural rate of unemployment at which inflation is stable. Second, there is a transmission mechanism through which monetary policy actions affect the economy. Third monetary policymakers face trade-offs.

Keywords:   inflation, monetary policy, macroeconomic policy, social welfare, external rule

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