ABSTRACT
In the 1980s, a new convention emerged in the economics profession—that central banks’ primary, or even single, responsibility should be controlling consumer price inflation. The recent problems in East Asia, as well as the earlier one in Japan, raise the question of whether such a concentrated focus on consumer price inflation has become tunnel vision, dulling the sensitivity of policymakers and market participants to other signs of overheating. A government that allows inflation to rise to very high levels is usually ineffective in many respects; so determining whether high rates of inflation are a cause of poor economic performance or a symptom of other problems that impinge on economic activity can be difficult. The present-day focus on inflation contrasts with much of the past thinking about business cycles, which gave considerably greater emphasis to the role of investment and speculation in the prices of stocks, real estate, and other assets.
