OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Monetary Policy at Price Stability

A Review of Some Issues

In this paper policy issues related to the operation of monetary policy in a low inflation environment are discussed. The successful reduction of inflation rates in a number of OECD countries in recent years arguably represents a regime shift that is likely to affect the operation of monetary policy. Some of the practical issues involved are the potential existence of a trade-off between inflation variability and output variability, asymmetries in the short-run Phillips curve, the interaction between monetary and fiscal policies, the effectiveness of monetary policy instruments, the appropriate specification of the price stability objective, as well as the credibility of monetary policy in a near price-stability environment. The results indicate that under many circumstances none of these issues should cause major difficulties at price stability. Furthermore, the analysis tends to strengthen the argument for maintaining relatively tight control over inflation. Sound fiscal policies ...


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