David Dodge: Low and predictable inflation and the performance of Canadian
labour markets1
Lecture by David Dodge, Governor of the Bank of Canada, to the Memorial University of
Newfoundland, St. John's, Newfoundland and Labrador, 20 November 2003.
The references can be found at the end of the speech on the Bank of Canada's website:
www.bankofcanada.ca.
* * *
The goal of Canadian monetary policy is to contribute to solid economic performance and rising living
standards. The best way we can do this is by keeping inflation low, stable, and predictable. This has
important implications for labour market performance.
Although inflation is now low, stable, and predictable, this has not always been the case. Indeed, in
the 1970s, inflation was high, unstable, and unpredictable. This led to the establishment of the
Anti-Inflation Board (AIB) in 1975, where I worked as Research Director.
Tonight, I would like to reflect on what we have learned since the AIB closed its doors almost 25 years
ago to the day. I'll begin with a brief discussion of the theoretical foundation for the role that inflation
expectations play. Expectations are important for both price- and wage-setting, but I will concentrate
on the wage-setting aspects. I would next like to discuss the Bank of Canada's inflation-targeting
framework, which serves to anchor inflation expectations. I will also address the issue that our inflation
target may be too low because nominal wages are downwardly rigid. And I will discuss Canada's
labour market performance and how it has improved substantially with the change in our monetary
policy framework since 1991. Finally, I will say a few words about the conduct of monetary policy
today, and offer some brief concluding remarks.
1. Inflation and the role of inflation expectations
Let me begin by going back to the 1970s. When we started that decade, the inflation rate was around
3 per cent. But it quickly rose to over 12 per cent in the span of three years. Not only was inflation
rising, it had become more variable, creating uncertainty over the future rate of inflation.2 This made it
difficult for workers and employers to decide on the appropriate rate of inflation to incorporate into
wage settlements. In this environment, it was not surprising that some workers demanded wage
increases, both as compensation for past inflation and as a precaution against future inflation. And
many employers granted them. When they did not, workers often went on strike. On average, in the
1970s, over seven million person-days were lost to strikes each year. This was an enormous loss of
output. High and variable inflation also triggered large wage settlements. This fuelled inflation
expectations and contributed to both a wage-price spiral and a wage-wage spiral.3
In the economics literature of the day, there was a lot of confusion over the role that inflation
expectations play in the wage-formation process. The literature stressed that workers and unions
sought to catch up with inflation that had already occurred. But against this background, Milton
Friedman argued that forward-looking expectations were more important in wage bargaining than
catching up with past inflation. In particular, he stressed that workers bargain over real, and not
nominal, wages. When signing a new contract, workers demand higher wages if they expect prices to
increase over the life of the contract so as to preserve their real wages.
Thus, he argued that it is not the recently observed rate of inflation, but rather the expected rate of
inflation that plays a prominent role in wage-setting. But with inflation rising and becoming more
variable, there was considerable uncertainty over what the future rate of inflation would be. Indeed,
high and variable inflation meant that there was no anchor for inflation expectations, and this lack of
an anchor led to considerable turbulence in wage-setting.4
Although contractionary macroeconomic policies were required to lower the double-digit inflation rate,
such policies operate with a lag and would have resulted in higher levels of unemployment during the
transition period. One train of thought in the early to mid-1970s was that temporary wage and price
controls could alleviate the negative impact on unemployment by ensuring that, over a period of time,
wage- and price-setting behaviour would become consistent with the more restrictive macroeconomic
policies.
The Anti-Inflation Board was therefore established to try to anchor inflation expectations through wage
and price controls. The objective was to ensure that wage growth was in line with a set of targets for
inflation of 8, 6, and 4 per cent over a 3-year period. This was done with the assumption that monetary
and fiscal policy would be set to be consistent with such a result.5
The imposition of wage and price controls was very controversial, to say the least. One well-known
academic even described them as "how to do a lot of harm by trying to do a little good."6 There were
three principal arguments against the use of controls. The first was that they would create distortions
in the economy and that the longer the controls were in place, the greater these distortions would
grow. The second was that controls are very difficult and costly to administer. Third, there was doubt
as to whether the controls could really engineer a permanent reduction in inflation. In particular, would
policy-makers place too much emphasis on controls and not enough on supporting macroeconomic
and structural policies?
The empirical evidence that followed suggested that the controls were responsible for a reduction of
about 2 to 3 percentage points in wage increases.7 Ultimately, however, neither monetary nor fiscal
policy was restrictive enough to maintain a lower rate of inflation, although, at the time, monetary
policy was thought to be sufficiently tight. Subsequent research at the Bank, however, showed that the
links between movements in the narrow monetary aggregate M1 and changes in prices were not as
close in the short run as had been expected. And the size of the short-run changes in interest rates
required to keep the money stock within its target band were not enough to have much of an impact
on real output or prices.8
The fact that the link between any monetary aggregate and inflation did not prove to be very tight over
time led the Bank to suggest in 1988 that it should focus directly on price stability as the anchor for
monetary policy.9 This led to the introduction of the inflation-targeting framework in 1991, one
important objective of which is the anchoring of inflation expectations.
We did this because we had learned that, once inflation expectations are anchored, they contribute to
more stable output and employment growth, allowing for more durable gains in real income over time.
2. Inflation targeting and the behaviour of inflation
In February 1991, the Bank and the Government of Canada jointly announced a series of
inflationreduction targets.
4
In addition, the economy was buffeted by shocks that had not been seen before. For example, the economy was hit by adverse
oil-price shocks that fed directly into inflation expectations in the absence of a clear nominal anchor for monetary policy. And these
shocks, combined with other structural changes, made it difficult for workers and employers to judge how to respond.
5
For an overview of the causes of inflation, as well as the goals of the AIB, see Dodge (1976).
6
Lipsey (1977).
7
Auld et al (1979).
8
Thiessen (2000). In other words, the interest rate elasticity of M1 demand was too high. In the second half of the 1970s, the nominal
anchor for monetary policy was a series of target ranges for growth in M1. These were abandoned in the early 1980s as the
relationship between movements in the narrow money aggregate and changes in nominal spending broke down. Another problem
with using the monetary aggregate M1 as the target for monetary policy was the uncertain impact of financial innovation, which
weakened the relationship between M1 and other macroeconomic variables.
9
Crow (1988).
BIS Review 51/2003
These targets were aimed at gradually bringing the 12-month rate of inflation down to 2 per cent, the
midpoint of the inflation-control target range, by December 1995. Given the empirical evidence for
Canada, which showed that the appropriate horizon for aiming at an inflation target was about 11⁄2 to
2 years, the first formal target was set for December 1992 at a rate of 3 per cent (plus or minus 1 per
cent). Since that initial agreement, the inflation target has been extended three times, with the latest
agreement covering the period to the end of 2006. In each case, the midpoint of the inflation-control
target range has been maintained at 2 per cent.
The measure of prices chosen for the target was the consumer price index (CPI). This index is well
understood by workers, unions, and employers, partly because of its use in cost-of-living (COLA)
agreements. The operational guide for the Bank, however, is core inflation.10 The reason for using a
core inflation measure is to focus on the underlying trend in inflation on which monetary policy can
have an effect. Given the lags between monetary policy actions and their impact on inflation, shocks
that are expected to dissipate within that time frame are generally outside the scope of central bank
action, unless such shocks have an impact on inflation expectations.
Since the adoption of inflation targeting, the inflation rate has fallen significantly. Indeed, by January
1992, inflation was already close to 2 per cent, down from its average of over 5 per cent between 1988
and 1991. Although at times it has approached the boundaries of the range, and exceeded it earlier
this year, over the medium term, the average inflation rate has remained around 2 per cent. Indeed,
over the six-year period from 1996 to 2002, it was just under 2 per cent. Moreover, not only has the
inflation rate fallen, it has become more stable. In other words, movements away from the target have
not been persistent. When inflation has moved away from the midpoint, it has shifted back towards
2 per cent as the shocks have worn off.
Not surprisingly, the Bank has undertaken considerable research to better understand the dynamics of
inflation. One strand of this research has examined the persistence of inflation by allowing for potential
changes in inflation regimes.11 The results show that the inflation process in Canada can be divided
into three distinct regimes: one with extremely high persistence and high inflation rates, one with fairly
low persistence and moderate inflation rates, and one with low persistence and low inflation rates. In
the first regime, which prevailed in the 1970s and early 1980s, when inflation moved up, it tended to
stay up. Since that time, the economy has moved into the second and third regimes, with inflation
becoming much less persistent. Indeed, persistence fell considerably over the 1980s and essentially
disappeared in the late 1990s.12
This decline in the persistence of inflation was the result of the change in the monetary policy regime
that has fostered more forward-looking inflation expectations. Traditional analysis of the
inflationunemployment trade-off using the Phillips curve, however, has typically modelled inflation expectations
as the weighted sum of past lags of inflation.13 More recent research has therefore moved towards
embedding forward-looking expectations in this analysis. Cross-country analysis covering OECD
inflation-targeting countries indicates that, since the adoption of the targets, inflation expectations have
become more forward-looking, and that they are anchored around the official targets.14 In our own
empirical research for Canada, we have also found that expectations have become more forward
looking.15
10
When the targets were first introduced, core inflation was defined as the CPI excluding food and energy prices and the effects of
changes in indirect taxes on the remaining CPI components. We now have a more refined measure that excludes only the eight
most volatile elements of the index as well as the effects of changes in indirect taxes on the remaining components. One reason for
moving to the new measure of core inflation was that it is a better predictor of future inflation than the previous measure (Macklem
2001).
11
Ricketts and Rose (1995), Demers (2003).
12
St-Amant and Tessier (1998) find that this has also been the case in other major inflation-targeting and non-targeting countries.
13
The restriction that these lags sum to one is usually imposed so that there is no long-run trade-off between inflation and
unemployment.
14
Clifton, Leon and Wong (2001).
15
Khalaf and Kichian (2003). Because traditional Phillips curves are reduced-form equations, changes in the monetary policy regime
can undermine their use for policy purposes (the Lucas Critique). Research at the Bank has therefore also examined whether the
New Keynesian Phillips curve adequately represents inflation dynamics in Canada. Guay, Luger and Zhu (2002) have found that this
is not the case, although their work highlights the importance of including forward-looking expectations in the analysis. Work has
also been undertaken on estimating the so-called sticky information Phillips curve based on the premise that firms change prices
slowly because of the costs of acquiring new information relevant to that decision. See Khan and Zhu (2002).
BIS Review 51/2003
Another fact about the inflation process in Canada is that inflation has become less uncertain - in other
words, more predictable. After the oil-price shocks of the 1970s, inflation variability rose sharply.
Although it fell during the years when the AIB was in operation, it rose again in the 1980s. However,
between the 1980s and the latter part of the 1990s it dropped almost fourfold.16 This reduction in
inflation variability linked to the low-inflation environment allows people to take a longer-term view with
respect to their planning, which leads to a better allocation of economic and financial resources.
In Canada, policy credibility has clearly increased over time. Work carried out using data to the
mid-1990s suggested that, while central bank credibility had improved in inflation-targeting countries, it
was difficult to say whether explicit inflation targets had made any additional contribution to that
credibility.17 More recent evidence suggests that the inflation target has, in fact, played an important
role in enhancing credibility. For example, since the mid-1990s, long-term inflation expectations have
fallen close to the midpoint of the target range, which is also close to the mean of inflation.18
In Canada, expectations of forecasters and businesses began to fall in line with the targets soon after
they were introduced.19 At first, this was for expectations at the 2-year horizon. Gradually, this
lengthened to 6 to 10 years. By 1997, long-term expectations of inflation in financial markets, as
expressed by the difference between 30-year yields on conventional and index-linked bonds, had
fallen in line with the 2 per cent target midpoint. They have been firmly anchored at that level ever
since, despite the various shocks that have hit the Canadian economy. This is in strong contrast to
earlier periods in our history when future expectations had been fairly tightly linked to recently
observed inflation rates.20 And this change in behaviour is not because there have been fewer
economic shocks. In fact, over the past few years, we have witnessed economic crises in Asia and
Russia, oil-price shocks, and the tragic events of 11 September 2001 in the United States. Despite all
of this, inflation expectations have remained well anchored. This is in absolute contrast to earlier
periods. And it points to the important role that monetary policy plays in anchoring inflation
expectations.
In general, there is real evidence to support the argument that, with the inflation target becoming
increasingly credible, the whole nature of the inflation process has changed. The short-run response of
inflation to measures of excess demand and supply appears to have fallen. And similarly, the
response of inflation to relative price shocks, such as changes in the exchange rate and energy prices,
also seems to have declined. These changes have had the effect of reinforcing the stability of the
inflation process and, therefore, of inflation itself. And this, in turn, has produced a more stable
macroeconomic environment.
Moreover, by keeping average rates of inflation close to the inflation target, and by indicating that the
Bank will act symmetrically to shocks that drive inflation away from the target in either direction, we
have been able to contain inflation expectations. Indeed, under a credible monetary regime, there
should be fewer forecasting errors in the bargaining process, since uncertainty about inflation is low.
Thus, there is less need for workers to demand additional wage increases to protect themselves
against the risk of unexpectedly high future inflation - increases that can contribute to a wage-price
spiral. Nor are employers as likely to offer such increases. Similarly, both employers and workers can
look through periods when inflation is below the target. Thus, wage-setting becomes focused on actual
developments in the particular sector. And workers and unions are able to place greater emphasis on
real factors, such as productivity, that will help to boost income and living standards.
3. Inflation targeting: is the target set too low?
Now I would like to turn to concerns by some analysts that the level of the inflation target is set too
low.
Inflation targets, whether in Canada or elsewhere, have typically not been set at zero. One argument
for excluding zero is that there is downward rigidity in nominal wages. More specifically, it says that a
little inflation is needed to "grease the wheels" of the labour market because nominal wages are
downwardly rigid. Thus, it is argued that the target for the inflation rate should be in the 2 to 4 per cent
range to facilitate adjustments in the real wage.21 You will recall that, in Canada, the target range is set
at 1 to 3 per cent.
One reason behind this argument is the belief that inflation allows firms to provide real wage increases
to workers whose productivity is rising, while reducing real wages to less-productive staff without
having to cut nominal wages.22 Therefore, for firms to achieve the desired adjustment in real wages in
the face of adverse demand shocks, inflation would have to be above zero. Otherwise, unemployment
would rise, perhaps at an increasing rate, as inflation approaches zero, because firms would have to
resort to layoffs to keep wage bills at their desired level.
Why might nominal wages be downwardly rigid? This could result from money illusion - for example,
workers refusing to accept nominal wage cuts when, in fact, they may have suffered a similar
reduction in real wages in the past because of inflation. Firms might also be reluctant to cut nominal
wages because of notions of fairness. They might also have concerns that such cuts would adversely
affect the quality of candidates they seek to attract, or lead to higher quit rates.
On the face of it, downward nominal wage rigidity would seem to have little relevance for Canada.23 As
I will discuss in more detail later, in the late 1990s, the unemployment rate fell sharply even though
inflation had stabilized around 2 per cent.
The question is, how far above zero should the inflation target be set? This is an empirical question
about how important downward nominal wage rigidity is in practice. Is there evidence that there is so
much resistance to nominal wage cuts in Canada that our inflation target of 2 per cent is too low?
In the period leading up to the May 2001 renewal of the latest inflation target, the Bank undertook
considerable research using a variety of tools and addressing a number of hypotheses to determine
the extent of nominal wage rigidity in Canada.24
One way to examine the likely impact of downward nominal wage rigidity is to estimate what the wage
distribution would look like in the absence of rigidity. On balance, this line of research demonstrates
that downward nominal wage rigidity has not been an important feature of the Canadian labour
market. Relatively more wage freezes do occur at low inflation rates, but this would be expected
anyway, since the mean of the wage-change distribution varies with the rate of inflation. Econometric
estimates suggest that the net effect of downward nominal wage rigidity on wage growth was in the
range of only 0.07 to 0.18 per cent in the unionized private sector in the 1990s.25
It is important to note that what might appear to be downward nominal wage rigidity could also be a
form of menu costs. By this, I mean the fixed costs associated with changing pay scales, a task that
firms may be reluctant to undertake unless a large wage adjustment is required.26 The estimates of
rigidity that I just mentioned incorporate these effects.
Another strand of research has examined the employment effects of downward nominal wage rigidity
in Canada. There are relatively few papers on this subject. Moreover, estimates of the employment
impact tend to be sensitive to model specifications, which are typically reduced-form equations linking
changes in employment growth to changes in output growth and to a variable that measures wage
cuts or freezes. On balance, however, these studies do not support a significant employment impact.27
Most of the data used in the research I have cited come from wage settlements in the unionized
sector, which begs the question as to whether the results would hold more generally for all workers in
the economy. Evidence suggests that the wage-settlements data tend to overstate the amount of
nominal wage rigidity in the economy, since base wage rates for workers outside the unionized sector
are typically more flexible.28 For example, small firms tend to have more flexible pay practices, while
variable compensation, including adjustments to non-wage benefits, also allows for more nominal
wage flexibility.
In addition to using micro-level data to examine downward nominal wage rigidity, aggregate data can
also be used to examine the effect of unemployment or the output gap on inflation - in other words, the
slope of the Phillips curve. If downward nominal wage rigidity exists, then the slope of the Phillips
curve should have become flatter in the period of excess supply during the low-inflation period of the
1990s. Evidence from this research, however, does not support this hypothesis.29
Another line of argument that has been tested using aggregate data has been referred to as
"nearrational" wage setting. It suggests that workers and firms might not worry as much about inflation when
it is at low levels and, therefore, do not fully incorporate small changes in inflation into their inflation
expectations.30 Supporters of this line of reasoning argue that unemployment can be sustained below
the equilibrium rate over a range of low and moderate rates of inflation. Thus, there is some positive
inflation rate that should be chosen as the target.
One problem with this argument is that it is difficult to imagine why agents would continuously ignore
the negative impact of low inflation.31 Although the cost might be small in a single period, it would
clearly accumulate over time, which should induce them to become fully rational in their wage- and
price-setting. There is little Canadian evidence in this area. That which exists, however, suggests
implausibly high estimates of near-rational behaviour when inflation is at 3 per cent.32
In summary, there is little substantive evidence to suggest that downward nominal wage rigidity or
near-rationality in wage-setting impedes appropriate adjustment at our currently targeted inflation rate
of 2 per cent. But equally, there is little substantive evidence to suggest that a target lower than 2 per
cent would lead to a measurable improvement in economic behaviour. Thus, because inflation
expectations have become well anchored around 2 per cent, maintaining the 2 per cent target was
judged to be appropriate.33
4. Canadian labour market performance
In this part of my lecture, I would like to discuss how the labour market functions better than it did a
decade ago and, indeed, better than when the AIB was wrapped up in 1978.
First: As I said, inflation has become low, stable, and predictable. The impact of this development can
be seen in the path of nominal wages.34 Indeed, the growth in nominal wages has also slowed, along
with falling inflation. Since the introduction of the inflation target, average annual growth in nominal
wages has been about 4 per cent, down from the approximately 14 per cent average growth recorded
in the 1970s and the 8 per cent witnessed in the 1980s.35
28
Crawford and Harrison (1997).
29
Farès and Lemieux (2000).
30
Akerlof, Dickens and Perry (2000).
31
O'Reilly (1998).
32
Fortin and Dumont (2001). Their results imply that less than 50 per cent of agents take inflation into account when it is near 3 per
cent.
33
See Technical Background Document 1 from the renewal of the inflation-control target (May 2001).
34
The relationship between movements in nominal wages and prices leads inevitably to the question of the direction of causality. The
nature of these dynamics has been a source of debate over the years. In the 1970s, the prevailing view was that nominal wage
inflation led to price inflation, largely because of wage "catch up"; i.e., workers and unions demanding additional wage increases to
compensate them for unexpected inflation and to match settlements in other sectors of the economy, such as the public sector. In
this context, the setting of wage guidelines by the Anti-Inflation Board was seen as instrumental in controlling inflation. Since then,
our research suggests that causality tends to run - at least primarily - from prices to wages, and not the reverse. See Cozier (1992).
35
These numbers refer to average annual growth in nominal wages, salaries, and supplementary labour income from the System of
National Accounts over the periods 1971-1980, 1981-1990, and 1991-2000.
BIS Review 51/2003
In addition, the distribution of wage changes has narrowed as inflation has become more predictable.
There are at least a couple of reasons why this might be the case. First, research points to a
significant link between higher inflation and greater inflation uncertainty. Where there is increased
uncertainty about inflation, firms and workers may set inflation adjustments incorrectly, creating
relatively more dispersion in wage changes.36 Thus, as uncertainty about inflation falls in line with
declining inflation, so should the dispersion around average wage changes. I will have more to say on
inflation uncertainty in a few moments. Second, a lower cross-sectional variation in wage settlements
could arise because downward nominal wage rigidity would impose a floor on the distribution. As I
have already discussed, this seems unlikely to have had a significant impact in Canada.
By contrast, others have argued that the variability of relative wage changes decreases when inflation
rates accelerate. Essentially, the argument here is that higher inflation leads to a greater demand for
indexed wage contracts - either explicitly through COLA clauses or implicitly when setting wages with
employers - to protect workers from unexpected increases in inflation.37
Clearly, what actually happens to the dispersion of wage settlements when inflation and inflation
uncertainty decline is an empirical proposition. A stylized fact of the Canadian economy is that, in the
unionized private sector, the variance in wage settlements fell by about two-thirds as inflation
declined.38 Although some have suggested that this could be because of greater downward nominal
wage rigidity, this is not the case. We know this because the variability of wage changes above the
median has also fallen significantly. Moreover, it has become apparent that wages no longer react
quickly to large changes in relative prices such as those generated by oil-price shocks or, more
recently, by auto insurance premiums. This is a very important contribution to labour market
performance in Canada because it suggests that relative wages tend to better reflect demand and
supply conditions in particular markets. There is, however, very little research in this area, and it is one
where more in-depth analysis would be useful.
Second: Another development in the 1990s was the relatively sharp increase in the average duration
of labour contracts in the private unionized sector of the economy. Compared with the 1980s, the
average duration increased by almost 10 months.39
Reduced inflation uncertainty is one explanation for this. As the variability of inflation has fallen, this
has likely lowered the amount of uncertainty in the economy and has led to labour contracts that are
longer in duration. Theoretical work in the late 1970s and early 1980s showed that lower uncertainty
about inflation should result in longer contracts.40 Empirical evidence for Canada gathered in the early
1980s was consistent with this theoretical work.41
Using several measures of inflation uncertainty, researchers at the Bank of Canada have confirmed a
robust negative relationship between inflation uncertainty and the duration of union contracts in the
private sector.42 In other words, as uncertainty about inflation has fallen, the duration of labour
contracts has lengthened. Indeed, it has been estimated that each percentage point decrease in
inflation uncertainty increases contract length by about two months.43 One positive implication of
36
Groshen and Schweitzer (1999).
37
Hammermesh (1986).
38
Crawford (2001). In the early 1980s, the annual standard deviation of wage settlements in the private sector was just over 3 per
cent. This fell to about 1 per cent in the year 2000. The data are drawn from a database maintained by Human Resources
Development Canada, which contains information on agreements signed in the unionized sector of the economy. Note that wage
settlements in the public sector are excluded from the numbers presented in the text. Data in this sector are distorted by wage
freezes in the 1990s as governments at various levels sought to control budget deficits.
39
In 1980, average duration across all contracts in the private sector was approximately 27 months. In 2001, it was about 36 months.
40
Gray (1978), Canzoneri (1980).
41
Since then, advances in econometric techniques have allowed researchers to better specify and construct uncertainty
variables and thus to measure the impact of inflation uncertainty on contract duration. For example, early empirical work by
Christofides and Wilton (1983) used a rolling regression technique to calculate inflation uncertainty. New techniques, such
as autoregressive conditional heteroscedasticity (ARCH) models, now allow researchers to better construct uncertainty
variables.
42
Fay and Lavoie (2002).
43
This refers to the uncertainty measure derived from an ARCH model, and expressed in terms of the standard deviation of
inflation uncertainty. Other measures of inflation uncertainty give different results.
BIS Review 51/2003
longer labour contracts is a savings in the resources dedicated to negotiation, or in other words, lower
transactions costs.
Another interesting finding is that the proportion of COLA clauses in private sector contracts has not
changed much over the last decade, even though contract duration has increased.44 Once unions
have bargained for such clauses, they appear reluctant to give them up, even if they are seldom
triggered.
Unions, of course, bargain for more than just wages and cost-of-living agreements. In the early 1990s,
they became more preoccupied with job security for their members in the face of weak aggregate
demand, increased contracting out, and the move towards hiring temporary staff as employers sought
to contain costs.45 Thus, uncertainty over developments in the real side of the economy - which I shall
refer to as real uncertainty - may have become more prominent at that time. Work at the Bank,
however, finds no empirical support for the proposition that this type of uncertainty affects contract
length.46
Third:
Another concrete benefit of low, stable, and predictable inflation has been less disagreement
over future inflation, leading to fewer strikes and, therefore, lower output losses. The number of
person-days lost to strikes peaked in