ABSTRACT
Some argue, none the less, that even if there is no long-run trade-off, the short-term costs of bringing inflation down are so high that we should think twice about trying to eliminate inflation outright, and this short-run Phillips curve theory still has many supporters. They argue that there is 'inertia' in the inflation process, and this inertia implies that we can bring inflation down substantially only by putting the economy through a painful and possibly quite long recession. The usual source of inertia is the sluggishness of inflationary expectations. Whatever the authorities do, it takes a while for private-sector inflationary expectations to adjust. If the government tightened its monetary policy, inflationary expectations would still remain high for a while. But if the government persisted with its new policy the private sector would eventually come to believe it and reduce its inflationary expectations, and only then would the recession begin to ease. Supporters of this view argue that this is exactly the kind of problem that governments face in practice - that there is no 'easy answer' to inflation - and point to a number of recent cases where they claim, governments have been able to disinflate only by putting the economy through a recession. A good case in point is said to be Britain in 1979-81, which went through a very severe recession when the Thatcher government tightened monetary policy in the months after it came into power in 1979.
