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Federal Reserve Bank of Cleveland
Speech
Recent Inflation Developments and Challenges for Research and Monetary Policymaking : The 47th Konstanz Seminar on Monetary Theory and Monetary Policy, Insel Reichenau, Germany 5-12-2016
Loretta J. Mester
Abstract

It seems clear to me that if there is one topic that would benefit from better understanding the interplay of theory and policy, it is inflation. For a monetary policymaker, price stability is the Holy Grail — price stability is the one thing that monetary policy can ensure over the longer run, and monetary policy is the only tool that can ensure price stability over the longer run. The benefits of price stability for the economy are clear.2 Stable prices mean businesses and households don’t have to spend time trying to protect the purchasing power of their money; they can make long-term plans and commitments without having to deal with the uncertainty about the value of their money. When the price level is stable, any price changes reflect changes in the supplies of certain goods or services relative to others and this information is helpful to businesses and consumers when they have to allocate their scarce resources. Price stability also promotes other goals like financial stability and confidence in the economy, thereby supporting growth and maximum employment, the other part of the Federal Reserve’s dual mandate.


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Loretta J. Mester, Recent Inflation Developments and Challenges for Research and Monetary Policymaking : The 47th Konstanz Seminar on Monetary Theory and Monetary Policy, Insel Reichenau, Germany 5-12-2016, Federal Reserve Bank of Cleveland, Speech 71, 12 May 2016.
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Keywords: monetary policy; inflation; prices
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