against inflation. The challenge now confronting the Fed and its counterparts is how to proceed in this newly benign economic … environment: Should monetary policy seek to maintain a rate of low-level inflation or eliminate inflation altogether in an effort … calculating the gains in economic welfare that might result from a move from a low level of inflation to full price stability. The …

stronger bargaining position when they try to prevent a cut in money wages. If inflation is so low that some money wages have … to be cut, workers' stronger bargaining position requires higher unemployment in equilibrium. However, inflation is more … stable when money wage rigidity binds, providing an incentive for monetary policy makers to choose a low target for inflation …