By the early 1980s, double-digit inflation rates had become so pervasive among industrialized economies that they were seen as a major deterrent to global economic growth. Since then, an explicit policy goal of low inflation has become a mantra for politicians and many countries, such as the United Kingdom, New Zealand, Australia, Japan, Sweden and the eleven countries under the European Central Bank (ECB ), have adopted key reforms to achieve this goal. Specifically, they made their central banks more independent and thus insulated them from the temptations of inflationary finance; Furthermore, in most of these cases, as well as in the United States, central banks have practiced a greater degree of openness and transparency in monetary policy decision-making to give the private sector a better opportunity to monitor their activities. Today, these countries can boast remarkable success in reducing both inflation and inflationary expectations. For example, despite the surge in energy prices in 2000, consumer price inflation rates from the third quarter of 1999 to the third quarter of 2000 fell to 3.5 percent in the United States, 3.2 percent in United Kingdom, 1.6% in EMU countries, 2.7% in Canada, 0.9% in Sweden and 3.0% in New Zealand. Japan, with an inflation rate of -1.2%, is a special case, as it is just beginning to emerge from a prolonged recession. With inflation rates now in the single digits, attention has focused more on the issue of inflation. quantitatively determine what the “optimal” inflation rate should be. The evidence to date suggests that policy makers' views have coalesced, albeit tentatively, around a “2% solution” to this question. Consider for example these explicit inflation targets: 2.5% for… middle of paper… measures to lower the inflation rate and ensure it remains low. The question many are grappling with is: how low should they go? The evidence suggests that there is perhaps a timid coalescence of opinion around the choice of 2%. Research to date would support further reductions in the inflation rate to zero or mild deflation. However, further research is needed both on the functioning of economies with near-zero nominal interest rates, as recently highlighted by Lucas (2000), and on the nature and influence of various types of contractual arrangements, including financial and labor contracts , around which an important part of economic activity is organized. The findings of this research may strengthen arguments for an outcome closer to the “2% solution,” but in any case they are likely to suggest that a refinement of these inflation targets is necessary..