Strategies for Controlling Inflation

In the past fifteen years, an extraordinary development has occurred in economies throughout the world: inflation has fallen dramatically in many industrialised as well as emerging-market countries, to the point where many of them have reached what might arguably be called price stability. Why did this happen and how did policy-makers achieve this feat? This paper examines these questions by first outlining why a consensus has emerged that inflation needs to be controlled. Then it examines different strategies for controlling inflation and highlights the advantages and disadvantages of these different strategies. The discussion should shed light not only on how disinflation might best be achieved, but also on how the hard-won gains in lowering inflation can be locked in, so that inflation is less likely to rear its ugly head in the future.