60 – Matt Klein on Greece, Optimal Currency Areas, and Safe Assets
Macro Musings with David Beckworth
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The Importance of Price Stability in the Economy
Price stability makes complete sense when it's just pure demand driven shocks to the economy. But if you have changes in productivity growth, for example, and we had that between 2002 and 2004, what happens is, more rapid productivity growth tends to push up this natural interest rate. And as you mentioned, the Fed does not like that low inflation. So we had, with, you know, offset that in order to offset it to keep inflation up, it has to lower rates. So the Fed's doing exactly opposite of what would be implied by the rapid productivity growth, higher rates, lower inflation. The Fed does the opposite of that, lower rates to get higher inflation. That's part of
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