THE AMERICAN ECONOMY of the mid-1990s has been a source of envy
for the world and of puzzlement for macroeconomists. The civilian
unemployment rate has remained below 5 percent for one year and
below 6 percent for almost four years. Despite near universal forecasts
in 1994 of accelerating inflation that would accompany a dip of the
unemployment rate below 6 percent, inflation actually decelerated significantly
between 1994 and 1998. This benign outcome for inflation
stands in contrast to the significant acceleration that occurred when
unemployment last dipped below 6 percent, in the late 1980s.
