Finance and Economics Discussion Series (FEDS)
January 1998
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.
Full paper (223 KB Postscript)Keywords: Monetary policy, inflation expectations, policy rules, inflation targets
PDF: Full Paper
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