But, even after disinflation in the mid-1980’s, long-terminterest rates remained relatively high.

The obvious change is that economic-growth opportunitiesmushroomed, owing to greater monetary stability, disinflation, andnatural-resource wealth.

( Many of the same people argued for analogous reasonsagainst the Federal Reserve’s successful disinflation policies inthe early 1980’s.)

This is not the new economy, but an older one that was lost sight of during the crises of the 1970s and the disinflation of the 1980s.

Disinflation continued in most countries in 2004 reflecting relatively tight fiscal policies and in some cases, nominal effective exchange rate appreciation.

In most of the South-East European economies, disinflation continued in 2005, reflecting a further tightening of the macroeconomic stances and low levels of domestic cost pressures.

The macroeconomic environment in 2002 was generally supportive of disinflation in Eastern Europe and the CIS, and most of these economies made further progress towards price stability or lower rates of inflation.

Adopting tighter monetary policy aimed at disinflation may harm growth, and fixing a nominal exchange rate may harm price competitiveness either by initial overvaluation of the exchange rate or later by real appreciation not based on productivity growth.

In delivering secular disinflation, he did more than changeexpectations and economic behavior. He also greatly enhanced the Fed’s standing among the general public, in financial markets, andin policy circles.

While the policy of moderate real exchange rate appreciation has facilitated the recent disinflation in Russia, it is also likely to have contributed to the slowdown in industrial output in the last quarter of 2002.8 These somewhat conflicting trends indicate the uncertainties that surround the short-term outlook for the Russian economy.