at low levels adds to this general uncertainty, it is costly. IS ZERO THE MAGIC NUMBER? Does the fact that inflation can be costly mean zero inflation is optimal? Many economists and policy makers argue that zero inflation would allow consumers and firms to write simpler contracts and make long-term plans for retirement or future investment with less worry. The debate focuses on two questions: first, whether the costs of getting to zero inflation outweigh the benefits of being there; and second, whether there are significant costs as well as benefits to being at zero inflation. Getting to zero inflation can be costly, involving lost output and higher unemployment during the transition. Some economists argue that the costs of getting to zero may be greater than the benefits of being there. They point to the six postWWII episodes in which inflation came down significantly and note that output fell each time. Reducing inflation lowers output and raises unemployment during the adjustment because wages and prices are slow to respond, in this view. Many of those who argue for zero inflation emphasize that little sacrifice in unemployment or lost output is necessary if the central bank makes credible statements about the intended disinflation, and the public believes these declarations and incorporates them into its plans. In his recent book, Macr...
