Long-run price stability is generally considered to be a primary goal of monetary policymakers in many countries. One reason policymakers care about inflation is that it can harm economic performance. Numerous studies of the impact of inflation on economic performance have focused on whether increases in inflation reduce economic growth in the long run (Barro, Fischer 1993, Bruno and Easterly, and Clark). These studies have found that prolonged high inflation does in fact reduce economic growth, but they were not able to detect a significant long-run relationship between real growth and low or moderate inflation. Because anti-inflationary policies typically have short-run costs, such as higher unemployment and slower economic growth, the results from these studies may lead people to ask whether such policies are appropriate when inflation is low or moderate.
© 1996 Gregory D. Hess and Charles S. Morris
Hess, Gregory and Charles S. Morris. "The Long Run Costs of Moderate Inflation." Economic Review, Federal Reserve Bank of Kansas City, Second Quarter, 81 (1996): 71-88.
Posted with permission from publisher.