Discussion Paper Details

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Title: Understanding the Opportunistic Approach to Disinflation

Author(s): Patrick Minford and Naveen Srinivasan

Publication Date: June 2003

Keyword(s): deliberate disinflation, loss function and opportunistic disinflation

Programme Area(s): International Macroeconomics

Abstract: One approach to achieving price stability is to undertake a deliberate path to an ultimate goal of low inflation - deliberate disinflation. In contrast an opportunistic strategy for disinflation has gained credence in recent years. We compare the ability of the two approaches to achieve macroeconomic stability and conclude that the opportunistic approach is sub-optimal when a commitment mechanism is in place. We show that an opportunistic inflation response is, however, optimal when there is a non-linearity of the Phillips curve trade-off along with adaptive expectations- circumstances that appear unlikely in conditions of low inflation.

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Bibliographic Reference

Minford, P and Srinivasan, N. 2003. 'Understanding the Opportunistic Approach to Disinflation'. London, Centre for Economic Policy Research.