Panel Session II remarks: Lessons from History

This chapter presents remarks by Federal Reserve Vice Chairman Donald Kohn, who discusses lessons for central banks after experiences such as the Great Inflation. First, price stability is an important long-run objective, and second, inflationary expectations are important for the control of inflation. The third lesson is the importance of vigorous debate inside central banks as well as the input by outside experts to safeguard against serious policy errors. In addition, once inflation becomes embedded in inflationary expectations, to avoid high economic and social costs, central bankers should go to great lengths to diffuse them. Finally, Kohn suggests that central banks should be humble about what they know.