The concept of resource slack is central to understanding the dynamics between employment, output, and inflation. But what amount of slack is consistent with price stability? To answer this question, economists define baseline values for unemployment and output known as the natural rate of...

Forecasts of inflation affect decision-making in many segments of the economy. But in the early 1980s, economists found that forecasts in surveys taken over the past 20 years systematically underpredicted inflation. As a result, many economists stopped paying attention to forecasts. However,...

Keith Sill examines the theory and evidence on the link between fiscal and monetary policy and, thus, between deficits and inflation. Sill concludes that whether deficits lead to inflation depends on the extent to which a country’s monetary policy is independent.