All central banks manage the supply of money and credit in their countries, increasing and decreasing them as needed to provide what economies need to keep growing. The way central banks typically handle that job involves short-term interest rates. But when inflation is low, central banks can't use their usual methods to get money and credit into an economy that needs it. Several essays in this volume describe the work of economists who have investigated problems that central banks might have when inflation gets low. Other essays investigate related questions such as whether an economy suffers when it moves from high inflation to low inflation, what the costs of inflation are to economic welfare, and whether a little bit of inflation can actually be good for economic growth.
• Problems of operating in low-inflation economies is timely topic • Essays make both theoretical and empirical contributions by internationally known economists • Various theoretical perspectives are used for motivating money demand: standard distortions within a New Keynesian framework, overlapping generations, 'deep money'
Introduction; 1. The welfare cost of inflation in the presence of inside money Scott Freeman, Espen R. Henriksen and Finn E. Kydland, Commentary Wilbur John Coleman II and Tony Yates; 2. An open-economy model of endogenous price flexibility Michael B. Devereux, Commentary David K. Backus and Michael Dotsey; 3. Efficient inflation targets for distorted dynamic economies Costas Azariadis and Raphael W. K. Lam, Commentary Eric O'N. Fisher and Marvin Goodfriend; 4. Inflation and welfare in models with trading frictions Guillaume Rocheteau and Randall Wright, Commentary James Bullard and Shouyong Shi; 5. Good versus bad deflation: lessons from the gold standard era Michael D. Bordo, John Landon-Lane and Angela Redish, Commentary François R. Velde; 6. Monetary policy orientation in times of low inflation Jürgen von Hagen and Boris Hofmann, Commentary Jack Selody and Pierre L. Siklos; 7. Observations on disinflation in transition economies Paul Wachtel and Iikka Korhonen, Commentary Werner Hermann; 8. Inflation and financial market performance: what have we learned in the last ten years? John Boyd and Bruce Champ, Commentary Nicola Cetorelli and Peter L. Rousseau.
'This volume brings together an excellent set of papers on the costs of inflation. It is particularly useful to see in one place the different perspectives afforded by leading alternative approaches to the same problem. Anyone with an interest in the social costs of inflation will find this volume very useful.' Martin Eichenbaum, Northwestern University
'This book looks at monetary and fiscal conditions for low inflation in terms of the most advanced theories now used within central banks. Unprecedented responses by governments and central banks to the large shocks that brought forth the 2007–2008 financial crisis are stress-testing these theories. That the authors of the essays in this book are among the leading creators and critics of these theories makes this an especially valuable and timely collection.' Thomas Sargent, New York University
'This is a valuable collection that represents the kinds of models currently in use to study monetary policy. It should be studied by professionals who play a role in formulating monetary policy and by those who aspire to do research on monetary policy.' Neil Wallace, Pennsylvania State University
'An excellent collection of papers. The contributors use a wide range of theoretical models to address the advantages of having a low-inflation economy and the challenges of conducting policy in that environment. I highly recommend it for monetary economists and central bankers. You won't be disappointed.' Christopher Waller, University of Notre Dame