Current Issues in Economics and Finance

Inflation Goals: Guidance from the Labor Market?

December 1997Volume 3, Number 15
JEL classification: E31, E52, J30

Authors: Erica L. Groshen and Mark E. Schweitzer

As inflation rates in the United States decline, analysts are asking if there are economic reasons to hold the rates at levels above zero. A study of inflation's effects on the labor market suggests that low rates of inflation do help the economy to adjust to changes in labor supply and demand. When inflation's disruptive effects are balanced against this benefit, however, the labor market justification for pursuing a positive long-term inflation goal effectively disappears.

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