The Federal Reserve can use monetary policy to reduce the inflation rate, a process known as disinflation. Are the benefits of disinflation worth the costs? Proponents of disinflation argue that the long-run benefits of price stability, including lower interest rates, increased economic efficiency, and perhaps faster economic growth, greatly exceed the short-run costs. Opponents, of course, claim the opposite, usually arguing that the short-run costs in terms of higher unemployment and lost output would be immense.
Copyright © 1992 Federal Reserve Bank of Philadelphia. This article first appeared in Business Review - Federal Reserve Bank of Philadelphia 3 (May/June 1992): 3-15.
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Croushore, Dean. "What Are the Costs of Disinflation?" Business Review - Federal Reserve Bank of Philadelphia 3 (May/June 1992): 3-15.