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Journal Article

America's Historical Experience with Low Inflation

J. Bradford Delong
Journal of Money, Credit and Banking
Vol. 32, No. 4, Part 2: Monetary Policy in a Low-Inflation Environment (Nov., 2000), pp. 979-993
DOI: 10.2307/2601154
Stable URL: http://www.jstor.org/stable/2601154
Page Count: 15
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America's Historical Experience with Low Inflation
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Abstract

The inflation of the 1970s was a marked deviation from America's typical peacetime historical pattern as a hard-money country. We should expect America to continue to be a hard-money-low inflation-country in the future, at least in peacetime. The low rate of future inflation that we thus forecast changes the balance of macroeconomic risks and opportunities. The risk of debt-deflation-mediated recessions is somewhat higher because a low trend rate of goods-and-services price index inflation somewhat increases the chances of deflation. But it does not raise such risks as much as one might think. The failure of the Fisher effect to hold empirically means that a low-inflation era will in all likelihood be a high real interest rate era. But such high real interest rates do not appear to significantly discourage investment or growth.

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