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Models of Inflation and the Costs of Disinflation

In: Macroeconomic Modelling and Monetary and Exchange Rate Regimes

Author

Listed:
  • Bankim Chadha
  • Paul R. Masson
  • Guy Meredith

Abstract

The focus of this analysis is on the output costs of disinflation. A model of inflation with both forward and backward elements seems to characterize reality. Such an inflation model is estimated using data for industrial countries, and the output costs of a disinflation path are calculated, first analytically in a simple theoretical model, then by a simulation of a global, multiregion empirical model. The credibility of a preannounced path for money consistent with the lowest output loss is considered. An alternative, more credible policy may be to announce an exchange rate peg to a low-inflation currency.

Suggested Citation

  • Bankim Chadha & Paul R. Masson & Guy Meredith, 2019. "Models of Inflation and the Costs of Disinflation," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 3, pages 57-99, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811201721_0003
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    Keywords

    Exchange Rates; Modelling; Monetary Unions; Inflation Targeting;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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