IMF Working Papers

Models of Inflation and the Costs of Disinflation

By Guy M Meredith, Bankim Chadha, Paul R Masson

October 1, 1991

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Guy M Meredith, Bankim Chadha, and Paul R Masson. Models of Inflation and the Costs of Disinflation, (USA: International Monetary Fund, 1991) accessed November 21, 2024
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

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.

Subject: Capacity utilization, Demand for money, Disinflation, Inflation, Monetary base, Money, Prices, Production

Keywords: Capacity utilization, Demand for money, Disinflation, Disinflation path, Disinflation program, Europe, Inflation, Inflation equation, Inflation stickiness, Monetary base, Money supply, Nominal interest rate, North America, Phased-in disinflation, Price level, Rate of inflation, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1991/097

  • Stock No:

    WPIEA0971991

  • ISBN:

    9781451949483

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 39, No. 2, June 1992.

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