Monetary policy which is geared towards short-term employment growth or which even attempts to push unemployment below its structural level will only end up delivering higher inflation rates. This is what transpired in the 1970s and early 1980s, when inflation in the major industrial countries averaged roughly 8½%.
Decisive factors included not only energy-related price rises but also central banks’ increasing tilt towards employment-driven monetary policy and the absence of central bank independence in many quarters. A monetary policy that is focused on safeguarding monetary stability, on the other hand, will tend to lessen volatility in economic activity.