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Models of Inflation and the Costs of Disinflation

Author

Listed:
  • Mr. Guy M Meredith
  • Mr. Bankim Chadha
  • Mr. Paul R Masson

Abstract

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.

Suggested Citation

  • Mr. Guy M Meredith & Mr. Bankim Chadha & Mr. Paul R Masson, 1991. "Models of Inflation and the Costs of Disinflation," IMF Working Papers 1991/097, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/097
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    Keywords

    WP; rate of inflation; money supply; price level; disinflation path; inflation equation; disinflation program; inflation stickiness; nominal interest rate; Phased-in disinflation; Inflation; Disinflation; Capacity utilization; Monetary base; Demand for money; North America; Europe;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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