Is price stability enough?

William White

No 205, BIS Working Papers from Bank for International Settlements

Abstract: No one in the industrial countries should now question the substantial economic benefits associated with reducing inflation from earlier, high levels. At the same time, history also teaches that the stability of consumer prices might not be sufficient to ensure macroeconomic stability. Past experience is replete with examples of major economic and financial crises that were not preceded by inflationary pressures. Conversely, history shows that many periods of deflation, based on rising productivity, were simultaneously characterised by rapid growth. Recent structural changes in the global economy imply that this history might have more contemporaneous relevance than is commonly thought. If so, the implication is that policies directed to the pursuit of price stability might have to be applied more flexibly and with a longer-run focus than has recently been the case.

Keywords: economic policy; price stability; financial stability (search for similar items in EconPapers)
JEL-codes: E44 E50 E60 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (147)

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