Year: 1997
Type: article
Abstract: This paper analyzes the U.S. congressional proposal to instruct the Federal Reserve to, in the next five years, lower inflation to zero from its current rate of around 5 percent. The paper concludes that, when other policy options are considered, the zero inflation policy is not advisable. Its benefits would be very small—possibly negative—while its costs would probably be significant. Other, more direct policy options could produce most of the same benefits with fewer costs. Among these alternative policies are deregulating interest rates on demand deposits, paying interest on financial institution reserves, lowering the federal tax rate on capital income, and indexing the federal tax code to inflation. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. Early in the last decade, the annual U.S. inflation rate plunged from extremely high, double-digit levels to an apparently more acceptable level, around 5 percent. That’s
Source: Quarterly Review
DOI: 10.21034/qr.2132
Author: S. Rao Aiyagari
Institution: Federal Reserve Bank of Minneapolis
Language: English
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2111784617