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 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.
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| Main Author: | |
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| Format: | Journal Article biblioteca |
| Language: | EN |
| Published: |
2010
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| Subjects: | Macroeconomics: Production E230, Price Level, Inflation, Deflation E310, Business Fluctuations, Cycles E320, Monetary Policy E520, |
| Online Access: | http://hdl.handle.net/10986/4907 |
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