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Low Inflation, Deflation, and Policies for Future Price Stability
Keynote Speech by John B. Taylor
The effects of three different inflationary environments?high inflation, low inflation, and negative inflation?on real output stability are examined by looking at the experiences of Japan and the United States during the last 30 years. I begin by going back to see how things looked from the vantage point of the 1987 international conference at the Bank of Japan. Next I trace out how economic performance has evolved since then. Economic performance appears to have been better with low inflation than with either high inflation or negative inflation. I also look at some of the reasons for the different inflationary environments. I take both an interest rate policy rule approach and a quantity theory of money approach. Both approaches suggest that monetary policy has been the key factor in generating the different inflationary experiences.
Key words: Monetary policy; Inflation; Policy rule; Money growth; Zero interest rate policy
Views expressed in Monetary and Economic Studies are those
of the authors and do not necessarily reflect those of the Bank
of Japan or Institute for Monetary and Economic Studies.
Copyright
 2001 Institute for Monetary and Economic Studies, Bank of Japan
All Right Reserved.
 
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