BPEA | 1996 No. 1

The Macroeconomics of Low Inflation

George A. Akerlof,
George A. Akerlof Daniel E. Koshland, Sr. Distinguished Professor Emeritus of Economics - University of California, Berkeley
George L. Perry, and
George L. Perry Senior Fellow Emeritus - Economic Studies

William T. Dickens
William T. Dickens University Distinguished Professor of Economics & Social Policy - Northeastern University
Discussants: N. Gregory Mankiw and
N. Gregory Mankiw Robert M. Beren Professor of Economics - Harvard University
Robert J. Gordon
Robert Gordon Headshot
Robert J. Gordon Stanley G. Harris Professor of the Social Sciences - Northwestern University

1996, No. 1

THE CONCEPT of a natural unemployment rate has been central to most
modern models of inflation and stabilization. According to these
models, inflation will accelerate or decelerate depending on whether
unemployment is below or above the natural rate, while any existing
rate of inflation will continue if unemployment is at the natural rate.
The natural rate is thus the minimum, and only, sustainable rate of
unemployment, but the inflation rate is left as a choice variable for
policymakers. Since complete price stability has attractive features,
many economists and policymakers who accept the natural rate hypothesis
believe that central banks should target zero inflation.