In a world of near-zero inflation, nominal prices are more likely to need to fall.
When has the world known straight-line peace, prosperity, full employment, zero inflation and continuous growth?
Limiting the Fed to a single target zero inflation would be a step in the right direction.
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Nominal interest rates should reflect real interest rates in a world of zero inflation, if they are to perform their function of allocating capital efficiently.
Keen to keep Malaysia competitive, the prime minister has recently declared war on costs and set a target of zero inflation, though the current 3.5% rate is already the envy of other countries.
Any inflation rate greater than zero means there is too much money chasing too few goods, which means the Fed should not be injecting new high-powered money if it wants to have price stability (zero inflation).
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Various rules have been proposed, including a price-level rule (zero inflation), an inflation target rule (2 percent inflation), a nominal GDP target, and a Taylor rule designed to control the growth of nominal income by controlling the monetary base.
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This shortage manifests itself in the form of interest rates on Treasury securities that are near zero in nominal terms, and below zero when inflation is taken into account.
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Now, instead of aiming for inflation between zero and 2%, the target is for inflation below, but close to, 2%.
The Federal Reserve Board needs to hold money-market rates next to zero, minus zero adjusted for inflation.
After all, it you are satisfied with a 2% rate of return, near zero adjusted for inflation, go ahead.
Workers may be prepared to accept zero wage increases if inflation is 3%, implying a 3% real pay cut.
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So if inflation is zero, real wages cannot easily fall in declining regions or industries, and unemployment will rise.
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But to seek to keep inflation above zero is hardly to risk hyperinflation.
Holding inflation at zero rather than 3%, they estimated, would raise average unemployment over the long run by 2.6 percentage points.
Monthly inflation was zero in October and November, while prices of basic necessities have come down significantly, interest rates have been cut in half, and the value of the rupiah has doubled against the dollar since late July.
Real short-term interest rates in Japan (ie, adjusted for inflation) are zero or even slightly negative.
If inflation trends toward zero (before moving much higher later in the decade), then long term bond yields could naturally fall toward 2%.
The closer inflation is to zero, the harder it is to get the negative real interest rates often necessary in a recession, since nominal rates cannot go below zero.
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Lower import prices would then push inflation dangerously close to zero in America and Europe.
The Bank of England's central projection is that house-price inflation will subside to zero by the end of 2004.
But when inflation is close to zero, a pay freeze is regarded as an insult, even if it leaves living standards unchanged.
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In his report to the nation, he pointed to 3% economic growth in the first three quarters of 1999, up from near zero the previous year, an inflation rate of 6.6%, the lowest in two decades, interest rates under 9%, the lowest in 12 years, and 19% growth in exports.
The price of consumer goods is currently falling, and inflation overall is hovering around zero.
With nominal rates at zero, and core consumer-price inflation at 0.5%, you are still paid to borrow.
There are a number of good reasons to think the optimal long-run inflation rate is close to zero.
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Without adjusting for inflation, Scottish sales showed zero growth in value for the second quarter in a row.
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