situation poses to price stability. We propose to regard the central banker as a risk manager who aims to contain inflation … forecast the risks of worldwide deflation for horizons of up to two years. Although recently fears of worldwide deflation have … increased, we find that, as of September 2002, with the exception of Japan, there is no evidence of substantial deflation risks …

in favour of price-level or inflation targeting when the price-level target has been reached. This will jump-start the … economy and escape deflation by a real depreciation of the domestic currency, a lower long real interest rate, and increased … inflation expectations. The abandonment of the exchange-rate peg and the shift to price-level or inflation targeting will avoid …

central bank to meet is inflation target. The threat of deflation and a liquidity trap is examined. Transparent inflation … inflation (with base drift in the price level) and price-level stability (without such base drift) are compared, and a suitable … loss function (corresponding to flexible inflation targeting) is discussed, including the index and level for the inflation …

, which involves a commitment to higher future inflation. This commitment mechanism works even though, realistically, the …

occurs when unwanted deflation needs to be prevented or combated, but the central bank’s conventional monetary arsenal is …