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

Author/Editor:

Jose De Gregorio

Publication Date:

March 1, 1992

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:

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.

Series:

Working Paper No. 92/19

Subject:

English

Publication Date:

March 1, 1992

ISBN/ISSN:

9781451843699/1018-5941

Stock No:

WPIEA0191992

Format:

Paper

Pages:

26

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