Expectations, learning and the costs of disinflation: experiments using the FRB/US model
AbstractThe costs of disinflation are explored using the Board's new sticky-price rational expectations macroeconometric model of the U.S. economy, FRB/US. The model nests both model consistent and `restricted-information rational' expectations. Monetary policy is governed by interest-rate reaction functions of which two are considered: the well-known Taylor rule and another rule that is more aggressive and richer in its specification, estimated using data for the last 15 years. Agents are required to learn of shifts of the inflation target using linear updating rules. The simulated costs of disinflation are compared with other estimates of sacrifice ratios.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-42.
Date of creation: 1997
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- P.A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
- P.A. Tinsley, 1971. "On ramps, turnpikes, and distributed lag approximations of optimal intertemporal adjustment," Special Studies Papers 15, Board of Governors of the Federal Reserve System (U.S.).
- John B. Taylor, 1994. "The inflation/output variability trade-off revisited," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 21-24.
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