The Changing Dynamics of Inflation

Kroszner, Randall S.
July 2007
Business Economics;Jul2007, Vol. 42 Issue 3, p7
Academic Journal
Inflation in the United States and elsewhere has become lower and more stable over the past two decades. It is likely that monetary policy has played an important role in this change in inflation dynamics by creating expectations of stability. This paper traces the evolution of the role of expectations in thinking about inflation, the supporting evidence over the past two decades, and role of central banks in influencing expectations. Increased global integration has magnified these effects. However, the importance of factors other than monetary policy implies that policymakers must consider a wide range of information before acting. Moreover, expectations of inflation stability cannot be taken for granted; and policymakers must be vigilant against complacency.


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