Opportunistic and deliberate disinflation under imperfect credibility
Abstract: One strategy for disinflation prescribes a deliberate path towards low inflation. A contrasting opportunistic approach eschews deliberate action and instead waits for unforeseen shocks to reduce inflation. This paper compares the ability of these two approaches to achieve disinflation---and at what cost. We analyze these issues using the Federal Reserve's FRB/US model, which allows alternative assumptions to be made about expectations held by agents in the economy; hence, the credibility of the central bank can be considered in assessing the cost of deliberate and opportunistic disinflations.
Keywords: Inflation (Finance);
File(s): File format is text/html http://www.federalreserve.gov/pubs/feds/1998/199801/199801abs.html
File(s): File format is application/pdf http://www.federalreserve.gov/pubs/feds/1998/199801/199801pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 1998