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July/August 1999

Posted 1999-07-01

Is Inflation Too Low?

by William Poole

Inflation, as measured by the consumer price index, seems to have settled at an annual rate of about 2 percent. Is that rate too low? In this article, William Poole, the president of the Federal Reserve Bank of St. Louis, states his belief that the Federal Reserve’s target should be zero inflation, abstracting from measurement errors in the price indices.

Posted 1999-07-01

The FOMC in 1998: Can It Get any Better Than This

by David C. Wheelock

The U.S. economy turned in another solid performance during 1998, with faster real growth and employment gains, and lower inflation, than many observers had expected. From the standpoint of monetary policy, the year’s pivotal point occurred in August, when the Russian government defaulted on its domestic debt and devalued the ruble.

Posted 1999-07-01

Price-Level Uncertainty and Inflation Targeting

by Robert Dittmar, William T. Gavin, and Finn E. Kydland

The authors make two points about commonly proposed rules for inflation targeting. First, they argue that there is a great deal of uncertainty about the price level and inflation inherent in current proposals to target inflation. They show that the degree to which the central bank cares about the real economy can have a large impact on price level (and inflation) uncertainty.

Posted 1999-07-01

Can Market-Clearing Models Explain U.S. Labor Market Fluctuations?

by Victor E. Li

Throughout the past two decades, market-clearing models of the business cycle have been praised for their ability to explain key empirical features of the post-war U.S. business cycle. Real business cycle (RBC) theory shows that in a model grounded in microeconomic foundations, disturbances to national productivity can explain how aggregate variables such as GDP, consumption, and investment behave over time, relative to each other.