The Costs and Benefits of Price Stability: An Assessment of Howitt's Rule

Abstract

A common objection to making price stability the primary objective of monetary policy is that, once inflation is under way, it is less costly to live with a little inflation that it is to achieve a stable price level (as proposed in Howitt’s Rule). The author assesses the conditions that Howitt’s Rule requires and shows how reduced output growth caused by inflation might dramatically affect the outcome.

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