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This paper develops a model of inflation inertia based on optimizing forward looking staggered price setting in a small open economy. Unlike in current models of sticky prices, transitions to a lower steady state inflation rate take time even if they are fully credible, and they are associated...
Persistent link: https://www.econbiz.de/10012469143
This paper characterizes the properties of various interest-rate rules in a basic forward-looking model. We compare simple Taylor rules and rules that respond to price-level fluctuations (called Wicksellian rules). We argue that by introducing an appropriate amount of history dependence in...
Persistent link: https://www.econbiz.de/10012462667
We use the limited participation model of money as a laboratory for studying the operating characteristics of Taylor rules for setting the rate of interest. Rules are evaluated according to their ability to protect the economy from bad outcomes such as the burst of inflation observed in the...
Persistent link: https://www.econbiz.de/10012471783
Estimates of the cost of disinflation made before the recent reduction in the inflation rate varied widely. Estimates were made in terms of the sacrifice ratio -- the percentage points of GNP at an annual rate lost per percentage point reduction in the inflation rate. At one extreme it was...
Persistent link: https://www.econbiz.de/10012477755
distortion, e.g., underutilization of capacity and real exchange rate misalignment. However, while under imperfect credibility … by imperfect credibility …
Persistent link: https://www.econbiz.de/10012465476
credibility of the central bank. In contrast, conducting monetary policy with a flexible inflation target rule is likely to …
Persistent link: https://www.econbiz.de/10012469417
We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are … unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more … inflationary policy than a high-credibility bank, in the sense that it induces higher inflation, but a less expansionary policy in …
Persistent link: https://www.econbiz.de/10012472353
This paper presents a theory of the real effects of disinflation. As in New Keynesian models, price adjustment is … staggered across firms, As in New Classical models, credibility is imperfect: the monetary authority may not complete a promised … disinflation. The combination of imperfect credibility and staggering yields more plausible results than either of these …
Persistent link: https://www.econbiz.de/10012474997
outside these rate-of-return bands can be used as a simple test of exchange rate credibility, under the assumption of …
Persistent link: https://www.econbiz.de/10012475639
inflation inertia can emerge: the interaction between lack of credibility of government monetary policy announcements and the …. Lack of credibility is then shown to lead to output losses during a disinflation program. We demonstrate the effects of … during disinflation programs with and without price controls and the influence of credibility problems. We discuss nominal …
Persistent link: https://www.econbiz.de/10012476766