Concluding Panel Discussion: The Role of Monetary Policy under Low Inflation

I would like to start by thanking the Bank of Japan for organizing this conference on “The Role of Monetary Policy under Low Inflation” and especially for inviting me to participate in this policy panel. During the 1990s, there was a remarkable convergence across the frameworks used by different central banks around the world to define and implement monetary policy. In many cases, including Japan (in April 1998) substantial changes in the statute of the central bank were enacted: setting the goal for monetary policy, establishing (instrument) independence, and providing for accountability. Despite important differences remaining, there are a number of key common features across monetary policy frameworks. First and foremost price stability is, explicitly or implicitly, the primary goal of monetary policy. This may be explicit in the statute of the central bank or derive simply from the pragmatic recognition that low and stable inflation is a necessary condition for sustainable growth. From this viewpoint, the monetary policy framework has to be thought through in order to deliver price stability in a credible and lasting way while contributing to the overall stability of the economy. Price stability is what monetary policy is about. It requires at least low and stable inflation. Low inflation is therefore the “bread and butter” of our trade as central bankers. There has been a lot of recent interest in this topic. To give just few examples, it was one of the main issues at the 1999 Federal Bank of Kansas City’s Jackson Hole Symposium. Further were two conferences with the same title, “Monetary Policy in a Low Inflation Environment”: the first organized by the Federal Reserve of Boston in October 1999, and the second organized jointly by the National Bureau of Economic Research (NBER), the Center for Economic Policy Research (CEPR), and the Tokyo Center for Research (TCR), here in Tokyo in December. The recent interest on this topic is justified for at least two reasons. First, after decades of fighting inflation a satisfactory degree of price stability has been reached in most of the world economy. In the euro area, the end of disinflation is recent. It was only in 1996 that, for the first time in recent history, inflation went below 2 percent for all the 11 countries that would integrate the euro area. Going back to 1990, it is striking to recall that all these