Inflation Targeting as a Means of Achieving Disinflation
In this paper, we take an analytical approach to examine possible adverse effects of the use of inflation targeting as a disinflation regime. The idea is that a strict interpretation of an inflation target may preserve inflationary distortions after price stability is attained. We show that such a p...
| Main Author: | |
|---|---|
| Language: | EN |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/4907 |
| Summary: | In this paper, we take an analytical approach to examine possible adverse effects of the use of inflation targeting as a disinflation regime. The idea is that a strict interpretation of an inflation target may preserve inflationary distortions after price stability is attained. We show that such a policy not only creates a slump in output but may increase macroeconomic volatility substantially in a model in which wages are subject to a Taylor staggering structure. The policy implication is that the problems associated with an excessively rigid inflation targeting policy are even more severe during a disinflationary episode. |
|---|