Models of Inflation and the Costs of Disinflation
October 1, 1991
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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.
Subject: Capacity utilization, Demand for money, Disinflation, Inflation, Monetary base, Money, Prices, Production
Keywords: Capacity utilization, Demand for money, Disinflation, disinflation path, disinflation program, Europe, Inflation, inflation equation, inflation stickiness, Monetary base, money supply, nominal interest rate, North America, Phased-in disinflation, price level, rate of inflation, WP
Pages:
34
Volume:
1991
DOI:
---
Issue:
097
Series:
Working Paper No. 1991/097
Stock No:
WPIEA0971991
ISBN:
9781451949483
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 39, No. 2, June 1992.
