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Rules versus discretion - A disinflation case

Listed author(s):
  • Roni Frish


  • Nir Klein


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    This paper compares a strict inflation target regime to a conservative central bank regime to determine the monetary regime appropriate for a disinflation process. The analysis shows that in a two-period model, in which policymakers face given first-period inflationary expectations, a strict inflation target could be preferred to the appointment of a conservative central banker who has discretion. The result differs from that of Rogoff (1985), who assumed rational expectations and concluded that a conservative central banker is always preferable. The disadvantage of the conservative central banker derives from his tendency to accelerate disinflation relative to rate that maximizes social welfare. Copyright Springer-Verlag Berlin/Heidelberg 2004

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    Article provided by Springer in its journal Economics of Governance.

    Volume (Year): 6 (2004)
    Issue (Month): 1 (January)
    Pages: 41-61

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    Handle: RePEc:spr:ecogov:v:6:y:2004:i:1:p:41-61
    DOI: 10.1007/s10101-004-0081-y
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