RICHMOND, Va., June 30 /PRNewswire/ -- The Federal Reserve has finally
achieved its longtime goal of attaining price stability. The question now is
how the Fed, and other central banks, can best maintain such stability. In
the Federal Reserve Bank of Richmond's 2003 Annual Report feature article,
"Sustaining Price Stability," Bank president J. Alfred Broaddus, Jr., and
senior vice president and policy advisor Marvin Goodfriend make
recommendations based on an analytical framework for understanding inflation
and deflation.
Based on the new neoclassical synthesis, a macroeconomic model useful for
developing and analyzing monetary policy, the framework that Broaddus and
Goodfriend suggest implies a fundamental principle of price stability: that
inflation will remain low and stable if firms can expect only small departures
from those price markups that best maximize their profits. The authors build
on this principle to explore the implications of their framework for some of
the current challenges facing the Fed and other central banks. One key
implication, they say, is that open and effective communication is critical to
a central bank's credibility and thus its ability to maintain the price level.
As a means of overcoming this challenge, they recommend that the Fed, in
particular, commit to holding inflation within a target range of 1 to 2
percent and communicate this policy stance to the public.
First achieving and now sustaining price stability is especially important
as it reduces the uncertainties and risks that individuals and firms face in
making financial decisions. This in turn fosters greater saving and
investment, and growth in jobs and income.
In addition to the feature article, the annual report also includes
information on the Fifth District economy and on the Reserve Bank's
operational and financial activities. For copies free of charge, contact the
Bank's Public Affairs Department at 804-697-8109. An electronic copy is also
available on the Federal Reserve Bank of Richmond Web site at
http://www.rich.frb.org/pubs/ar/2003. (The electronic format does not include
listings and photographs of executives included in the print format.)
Federal Reserve Bank of Richmond news releases can be found at
http://www.rich.frb.org
SOURCE Federal Reserve Bank of Richmond
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Related links:
http://www.rich.frb.org
CONTACT:
Lisa Oliva, +1-804-697-8192, or Marsha
Shuler, +1-804-697-8706, both of the Federal Reserve Bank of
Richmond
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