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Opportunistic Monetary Policy: an Alternative Rationalization

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Abstract

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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  • Minford, Patrick & Srinivasan, Naveen, 2005. "Opportunistic Monetary Policy: an Alternative Rationalization," Cardiff Economics Working Papers E2005/9, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2005/9
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    1. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June.
    2. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    3. Bomfim, Antulio N & Rudebusch, Glenn D, 2000. "Opportunistic and Deliberate Disinflation under Imperfect Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 707-721, November.
    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. 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.
    6. Athanasios Orphanides & David W. Wilcox, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71.
    7. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    8. 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.
    9. Minford, Patrick & Srinivasan, Naveen, 2003. "Understanding the Opportunistic Approach to Disinflation," CEPR Discussion Papers 3938, C.E.P.R. Discussion Papers.
    10. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, December.
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    1. Patrick Minford & Naveen Srinivasan, 2008. "Are Central Bank Preferences Asymmetric? A Comment," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(1), pages 119-126, February.
    2. Srinivasan, Naveen & Kumar, Sudhanshu, 2012. "Zone-quadratic preference, asymmetry and international reserve accretion in India: An empirical investigation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 253-263.
    3. Naveen Srinivasan & M. Ramachandran & Sudhanshu Kumar, 2010. "Monetary Policy in a Low Inflation Environment: Is There Evidence for Opportunistic Behaviour?," Journal of Quantitative Economics, The Indian Econometric Society, vol. 8(2), pages 4-19.
    4. Christopher Martin & Costas Milas, 2010. "Testing The Opportunistic Approach To Monetary Policy," Manchester School, University of Manchester, vol. 78(2), pages 110-125, March.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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