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.