The Goal of Price Stability: A Review of the Issues
The basic responsibility of a central bank is to preserve the value of money—that is, to maintain stability in the general level of prices. This report pulls together the main arguments for and against price stability as the appropriate goal for monetary policy. The available evidence suggests that the benefits of price stability are many and large while the costs of getting there are transitory and small by comparison. Areas requiring further research are identified. The report also addresses the transition to price stability and the practical definition of price stability. It is illustrated that progress towards price stability is easier when wages and prices are flexible and when the monetary authority has credibility.