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This paper analyzes real and welfare effects of a permanent change in inflation rate, focusing on macroprudential policy’ role and its interaction with monetary policy.

While investigating disinflation costs, the authors simulate a medium-scale dynamic general equilibrium model with borrowing constraints, credit frictions and macroprudential authority.

Providing discussions on different policy scenarios in a context where still it is expected high inflation, there are three key contributions. First, when macroprudential authority actively operates to improve financial stability, losses caused by disinflation are limited. Second, a Taylor rule directly responding to financial variables might entail a trade-off between price and financial stability objectives, by increasing disinflation costs. Third, disinflation is welfare improving for savers, while costly for borrowers and banks. Indeed, while savers benefit from policies reducing price stickiness distortion, borrowers are worried about credit frictions, coming from collateral constraint.

The paper suggests threefold policy implications: the macroprudential authority should actively intervene during a disinflation process to minimize costs and financial instability deriving from it; policymakers should implement a disinflationary policy stabilizing also output; the central bank and the macroprudential regulator should pursue financial and price stability goals, separately.

This paper is the first attempt to study effects of a permanent inflation target reduction in focusing on the macroprudential policy’ role.

The Maastricht inflation criterion has influenced the choice of disinflation strategies of prospective euro area member countries. Some historically high‐inflation countries chose the fiat disinflation strategy of “low inflation now, reforms later,” bringing inflation down quickly. Their inflation rates increased immediately after their euro applications were assessed positively and stayed significantly higher than inflation in France and Germany, two historically low‐inflation countries. The inflation differentials reflect both structural rigidities inherited from the past and higher inflation expectations stemming from the chosen disinflation strategy. This paper seeks to address these issues.

The paper highlights the inflation consequences of the choice of compliance policies with the Maastricht inflation criterion. To this end, the paper estimates costs of future disinflations in six high‐inflation countries for which well‐established stylized facts are held.

The Maastricht inflation criterion has been an influential nominal rule. While it swayed the public stance toward low inflation, it biased the choice of the disinflation strategy toward fiat measures. Inflation in these countries declined only temporarily, giving these countries a pronounced V‐shaped pattern of inflation. These countries tended to opt for “low inflation now, reforms later” approach, which yielded low inflation quickly at the cost of postponing long‐term structural reforms. While the ERM II process can be made relatively painless by fiat measures, such a strategy results in inefficient transmission mechanisms and costly disinflations.

The paper highlights the long‐run inflation consequences of the choice of compliance policies with the Maastricht inflation criterion. While inflation was low prior to the euro and stayed low afterward in inflation‐averse countries, a V‐shaped inflation path in high‐inflation countries is seen. The countries that expect to benefit the most from a fast adoption of the euro are likely to opt for fiat‐driven compliance. The choice of compliance policies has consequences for future disinflations – monetary transmission distortions and inefficiencies of fiat policies increase the cost of future disinflations and will complicate ECB policymaking for years to come.

The authors make the case that data literacy is a key component to critical thinking in the world today. They describe the Federal Reserve Economic Data (FRED) database and how it can be used. They provide a classroom lesson that uses FRED to help students gain an understanding of inflation and price stability.

Assesses and appraises New Zealand’s economic restructuring between 1984 and 1994. Provides an historical overview of the country’s economic performance and looks at past governmental policies. Examines the impact of the return to power of the Labour Party in 1984 and provides a broad chronology of the reform measures as they have evolved. Examines the compatibility of micro‐ and macro‐economic policies and then looks at possible achievements.

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.