Historical review of inflation A crucial responsibility of any central bank is to control inflation, the average rate of increase in the prices of a broad group of goods and services. Keeping inflation stable at a moderately low level is important because, for reasons I will discuss, inflation that is high, excessively low, or unstable imposes significant costs on households and businesses.
However, irrespective of the complexity of their models, all central bank models are at best rudimentary in their capacity to model the financial sector and integrate it into the real economy.