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Opportunistic monetary policy: An alternative rationalization

  • Minford, Patrick
  • Srinivasan, Naveen

This paper offers an alternative rationalization for opportunistic behaviour i.e., a gradual disinflation strategy where policymakers react asymmetrically to supply shocks, opting to disinflate only in recessionary period. Specifically, we show that adaptive expectations combined with asymmetry in the Phillips curve of a specific sort together provide an optimizing justification for opportunism. However, the empirical basis for these conditions to be satisfied in the current low-inflation context of most OECD countries remains however to be established.

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File URL: http://www.sciencedirect.com/science/article/B6V7T-4K7NG60-1/2/cd9ec38e9a9947bcc77c4c6def47fcaa
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Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 58 (2006)
Issue (Month): 5-6 ()
Pages: 366-372

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Handle: RePEc:eee:jebusi:v:58:y:2006:i:5-6:p:366-372
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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  1. Orphanides, Athanasios & Wieland, Volker, 1999. "Inflation zone targeting," Working Paper Series 0008, European Central Bank.
  2. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  3. Antulio N. Bomfim & Glenn D. Rudebusch, 1997. "Opportunistic and deliberate disinflation under imperfect credibility," Working Papers in Applied Economic Theory 97-07, Federal Reserve Bank of San Francisco.
  4. Laxton, Douglas & Rose, David & Tambakis, Demosthenes, 1999. "The U.S. Phillips curve: The case for asymmetry," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1459-1485, September.
  5. Athanasios Orphanides & David W. Wilcox, 1996. "The opportunistic approach to disinflation," Finance and Economics Discussion Series 96-24, Board of Governors of the Federal Reserve System (U.S.).
  6. Friedman, Benjamin M., 1979. "Optimal expectations and the extreme information assumptions of `rational expectations' macromodels," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 23-41, January.
  7. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
  8. Minford, Patrick & Srinivasan, Naveen, 2003. "Understanding the Opportunistic Approach to Disinflation," CEPR Discussion Papers 3938, C.E.P.R. Discussion Papers.
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