Models of Inflation and the Costs of Disinflation

Author/Editor:

Guy M Meredith ; Bankim Chadha ; Paul R Masson

Publication Date:

October 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper focuses on the output costs of disinflation. A model of inflation with both forward and backward elements seems to characterize reality. Such an inflation model is estimated using data for industrial countries, and the output costs of a disinflation path are calculated, first analytically in a simple theoretical model, then by simulation of a global, multi-region empirical model. The credibility of a preannounced path for money consistent with the lowest output loss is considered. An alternative, more credible policy may be to announce an exchange rate peg to a low inflation currency.

Series:

Working Paper No. 91/97

Subject:

Notes:

Also published in Staff Papers, Vol. 39, No. 2, June 1992.

English

Publication Date:

October 1, 1991

ISBN/ISSN:

9781451949483/1018-5941

Stock No:

WPIEA0971991

Format:

Paper

Pages:

34

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