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The Costs and Benefits of Price Stability

In recent years, the Federal Reserve and central banks worldwide have enjoyed remarkable success in their battle against inflation. The challenge now confronting the Fed and its counterparts is how to proceed in this newly benign economic environment: Should monetary policy seek to maintain a rate of low-level inflation or eliminate inflation altogether in an effort to attain full price stability?

In a seminal article published in 1997, Martin Feldstein developed a framework for calculating the gains in economic welfare that might result from a move from a low level of inflation to full price stability. The present volume extends that analysis, focusing on the likely costs and benefits of achieving price stability not only in the United States, but in Germany, Spain, and the United Kingdom as well. The results show that even small changes in already low inflation rates can have a substantial impact on the economic performance of different countries, and that variations in national tax rules can affect the level of gain from disinflation.

Table of Contents

Introduction by Martin Feldstein
1. Capital Income Taxes and the Benefit of Price Stability
Martin Feldstein
2. Price Stability versus Low Inflation in Germany: An Analysis of Costs and Benefits
Karl-Heinz Todter and Gerhard Ziebarth
3. A Cost-Benefit Analysis of Going from Low Inflation to Price Stability in Spain
Juan J. Dolado, Jose M. Gonzalez-Paramo, and Jose Vinals
4. Some Costs and Benefits of Price Stability in the United Kingdom
Hasan Bakhshi, Andrew G. Haldane, and Neal Hatch
Comment (on chaps. 2, 3, and 4): Andrew B. Abel
Comment (on chaps. 2, 3, and 4): Rudiger Dornbusch
5. Inflation and the User Cost of Capital: Does Inflation Still Matter?
Darrel Cohen, Kevin A. Hassett, and R. Glenn Hubbard
Comment: Alan J. Auerbach
Discussion Summary
6. Excess Capital Flows and the Burden of Inflation in Open Economies
Mihir A. Desai and James R. Hines, Jr.
Comment: Jeffrey A. Frankel
Discussion Summary
7. Identifying Inflation’s Grease and Sand Effects in the Labor Market
Erica L. Groshen and Mark E. Schweitzer
Comment: Laurence Ball
Discussion Summary
8. Does Inflation Harm Economic Growth? Evidence from the OECD
Javier Andres and Ignacio Hernando
Comment: Frederic S. Mishkin
Discussion Summary
Author Index
Subject Index


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