Inflation Goals: Guidance from the Labor Market?

6 Pages Posted: 12 Jul 2007

See all articles by Erica L. Groshen

Erica L. Groshen

Federal Reserve Bank of New York; IZA Institute of Labor Economics

Mark Schweitzer

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Abstract

As inflation rates in the United States decline, analysts are asking if there are economic reasons to hold the rates at levels above zero. A study of inflation's effects on the labor market suggests that low rates of inflation do help the economy to adjust to changes in labor supply and demand. When inflation's disruptive effects are balanced against this benefit, however, the labor market justification for pursuing a positive long-term inflation goal effectively disappears.

Keywords: grease, sand, inflation, target, wage rigidity, monetary policy

JEL Classification: E31, E52, J30

Suggested Citation

Groshen, Erica L. and Schweitzer, Mark, Inflation Goals: Guidance from the Labor Market?. Current Issues in Economics and Finance, Vol. 3, No. 15, December 1997, Available at SSRN: https://ssrn.com/abstract=998564

Erica L. Groshen (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7685 (Phone)

HOME PAGE: http://www.newyorkfed.org/research/economists/groshen/index.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mark Schweitzer

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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