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Theories of Policy Accommodation: The Persistence of Inflation and Gradual Stabilizations

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  • Mr. Jose De Gregorio

Abstract

Persistent inflation and slow stabilization are usually the result of policy accommodation resorted to in an attempt to avoid the recessionary costs of a sharp reduction of inflation. This paper reviews three explanations for why policymakers, despite their dislike of inflation, may nevertheless choose to adopt accommodative policies. It emphasizes the role of indexation, uncertainty about policymakers’ preferences, and the existence of fixed costs associated with the implementation of a stabilization program. The paper also presents some evidence on the extent of persistence of inflation across countries.

Suggested Citation

  • Mr. Jose De Gregorio, 1992. "Theories of Policy Accommodation: The Persistence of Inflation and Gradual Stabilizations," IMF Working Papers 1992/019, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/019
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    Citations

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    Cited by:

    1. Carlos Chaverri Morales & Carlos Torres Gutiérrez, 2013. "Dinámica inflacionaria y persistencia en Costa Rica: periodo 1953-2009," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 3, pages 43-90, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    2. Pablo Pincheira B., 2009. "La Dinámica de la Persistencia Inflacionaria en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(1), pages 97-104, April.
    3. Jordan, Thomas J., 1999. "Central bank independence and the sacrifice ratio," European Journal of Political Economy, Elsevier, vol. 15(2), pages 229-255, June.
    4. Ramon Moreno & Agustin Villar, 2010. "Inflation expectations, persistence and monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 77-92, Bank for International Settlements.

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