es. But, there are several additional reasons to end zero inflation policies. Above all, this paper has demonstrated that the macroeconomics of low inflation is a delicate science. Macroeconomic performance is very different when inflation falls lower half of the 1-3 percent range than in the upper-half of the 2-4 per cent range, particularly in the long run. Numerically small, but effectively huge, differences arise from the sharp non-linearity of the long-run Phillips curve at low inflation rates. “Wringing the last drops of inflation out of the system has painful consequences for growth, jobs and investment that are neither politically acceptable nor economically desirable.” Though central banks are reluctant to see the logic of this argument at the moment, the time may soon come when the credibility of giving up zero inflation experiments will be greater than their continued pursuit. A prerequisite to this, in all likelihood, is that the least unemployment costly path for stabilising prices must be found. And, unfortunately, this is a difficult, if not impossible, pursuit. From all of the confusion, what is clear is that a little inflation, perhaps 1 to 3 percent, is a far more efficient policy choice than zero inflation. Such a moderate inflation target would allow real wages to decline where necessary without firms having to impose wage cuts or fire workers. Thus, “rather than misusing their energy pursuing zero inflation, governments should be exploring the other policy options now available. In today’s low-inflation environment, central banks can afford to be less restrictive than they have learned to be over the past two decades and allow greater room for growth. Exchange rates can, if necessary, be nudged downward without automatically provoking the wage and price spirals they did in the past.” Such examples are not necessarily a panacea for the damage caused by zero inflation experi...
