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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Opportunistic and Deliberate Disinflation under Imperfect Credibility
Antulio N. Bomfim and Glenn D. Rudebusch

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: Monetary policy, inflation expectations, policy rules, inflation targets

Full paper (156 KB PDF) | Full paper (223 KB Postscript)

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Last update: January 16, 1998