Stable Inflation versus Volatile Asset Prices: A Trade-off?

After the Great Inflation of the 1970s, central banks put a high premium on price-stability. William White argues that this paradigm is characterized by the four stylized facts:

1)      a general reduction in both level and volatility of inflation;

2)      robust and less volatile real economic growth interrupted by fewer recessions (both 1 and 2 referred to as “The Great Moderation")

3)      an increased prominence of credit, asset price and investment "boom and busts" often accompanied by financial crises of various types; 

4)      increased global trade imbalances.