university of chicago press, vol. 25, pp. 59 – 112. also see fernandez - villaverde, guerron - quintana, and rubio - ramirez ( 2012 ) for a discussion of future supply - side reforms that can serve as a current demand - side stimulus. bis central bankers ’ speeches fernandez - villaverde, jesus, pablo a. guerron - quintana, and juan rubio - ramirez. 2012. “ supply - side policies and the zero lower bound. ” working paper. field, alexander j. 2011. a great leap forward : 1930s depression and u. s. economic growth. yale university press. kocherlakota, narayana r. 2010. the new dynamic public finance. princeton university press. lebergott, stanley ( 1957 ). “ annual estimates of unemployment in the united states, 1900 - 1954. ” in the measurement and behavior of unemployment. national bureau of economic research, pp. 211 – 42. lucas, robert e. jr., and nancy l. stokey. 1983. “ optimal fiscal and monetary policy in an economy without capital. ” journal of monetary economics 12 ( 1 ) : 55 – 93. ohanian, lee e. 2001. “ why did productivity fall so much during the great depression? ” american economic review 91 ( 2 ) : 34 – 38. werning, ivan. 2007. “ optimal fiscal policy with redistribution ” quarterly journal of economics 122 ( 3 ) : 925 – 67. bis central bankers ’ speeches

behaved since that date. ( graph ) the main take - away is that, since that date, the pce inflation rate has averaged 1. 5 percent per year. furthermore, there has been a downward drift since early 2012. currently, the pce inflation rate is running near 1 percent. so, inflation has been running too low over the past six - plus years to be consistent with price stability. the good news is that the fomc does expect inflation to turn back toward 2 percent. however, i expect that return to 2 percent to take a long time – probably on the bis central bankers ’ speeches order of four years. and i ’ m not the only one forecasting a slow return to 2 percent inflation. earlier this year, the congressional budget office predicted that inflation will not reach 2 percent until 2019. to sum up : the fomc is undershooting its price stability goal. low inflation : why it matters i ’ ve told you that inflation has been, is and will be too low relative to the fomc ’ s target of 2 percent. but why should you care that inflation is too low? isn ’ t it a good thing when goods and services aren ’ t as expensive to buy? the answer to this – very good – question is : you should care because below - target inflation signals a significant problem in our economy. let me explain what i mean. at a basic level, you should think of prices as a signal about how our economy is using its available resources. in 2012, i had an experience that brought home this intuition in a very clear way. i visited williston, on the western edge of north dakota. as it is today, when i visited williston, it was in the heart of a major oil boom. that boom was pushing hard on the physical resources – like roads, water, housing – available to williston and pushing hard on the human resources available to williston. the result was relatively high inflation. so, when inflation is high compared to the fed ’ s target, like it was in williston, we know that demand is pushing hard on available resources. the converse is also true : inflation is low compared to the fed ’ s target when the demand for goods and services is too low to fully use the available resources in society. the low inflation in the united states tells us that resources are being wasted. what exactly are these wasted resources? there are multiple answers to this question – when demand is too low,