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Opportunistic and deliberate disinflation under imperfect credibility

Author

Listed:
  • Antulio N. Bomfim
  • Glenn D. Rudebusch

Abstract

On strategy for disinflation prescribes a deliberate path towards low inflation. A contrasting opportunistic approach eschews deliberate action and instead waits for unforeseen shocks to reduce inflation. This paper compares the ability of these two approaches to achieve disinflation-and at what cost. We analyze these issues using the Federal Reserve's FRB/US model, which allows alternative assumptions to be made about expectations held by agents in the economy; hence, the credibility of the central bank can be considered in assessing the cost of deliberate and opportunistic disinflation.

Suggested Citation

  • 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, revised 1997.
  • Handle: RePEc:fip:fedfap:97-07
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    File URL: http://www.frbsf.org/econrsrch/workingp/wp97-07.pdf
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    References listed on IDEAS

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    1. Croushore, Dean & Koot, Ronald S., 1994. "A measure of federal reserve credibility," Journal of Policy Modeling, Elsevier, vol. 16(2), pages 215-231, April.
    2. Peter von zur Muehlen & Antulio N. Bomfim & Robert J. Tetlow & John Williams, 1997. "Expectations, learning and the costs of disinflation: experiments using the FRB/US model," Finance and Economics Discussion Series 1997-42, Board of Governors of the Federal Reserve System (U.S.).
    3. Flint Brayton & Eileen Mauskopf & David L. Reifschneider & Peter A. Tinsley & John Williams, 1997. "The role of expectations in the FRB/US macroeconomic model," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 227-245.
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    Cited by:

    1. Chan Guk Huh & Kevin J. Lansing, 1998. "Federal Reserve credibility and inflation scares," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.

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