Sustaining Price Stability

18 Pages Posted: 5 Dec 2012

See all articles by J. Alfred Broaddus

J. Alfred Broaddus

Federal Reserve Banks - Federal Reserve Bank of Richmond

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: 2004

Abstract

Interest rate policy works to sustain price stability by stabilizing production costs against shocks to current productivity and future income prospects. The Fed should publicly target core PCE inflation in a 1 to 2 percent range to improve short-run communications and lock in credibility for low inflation. To secure credibility against deflation, the Fed should arrange more fiscal support for monetary policy at the zero bound on nominal interest rates than is ordinarily granted by Congress and the Treasury. By featuring price-cost, employment, and output gap indicators more prominently in its communications, the Fed can clarify the potential for inflation or deflation and its intentions for dealing with these threats.

Suggested Citation

Broaddus, J. Alfred and Goodfriend, Marvin, Sustaining Price Stability (2004). FRB Richmond Economic Quarterly, vol. 90, no. 3, Summer 2004, pp. 3-20. Available at SSRN: https://ssrn.com/abstract=2184980

J. Alfred Broaddus (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond

P.O. Box 27622
Richmond, VA 23261
United States

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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