Over the past ten years, the single most important achievement of monetary policy has been the attainment of price stability. Through an admirable and sustained effort of monetary discipline, central banks in both the United States and Europe have overcome the regrettable “Great Inflation” of the 1970s and the early 1980s.
To illustrate, in the United States, private sector deleveraging was painful and swift as people cut back on debt and walked away from their over-mortgaged, devalued houses. In Europe, in contrast, this process is less well advanced, while in Canada, households continue to add to their debt loads. Another headwind has come from governments, which responded to the global recession with additional fiscal stimulus.