A quantitative exploration of the opportunistic approach to disinflation

  • Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under "the opportunistic approach to disinflation" a central bank controls inflation aggressively when inflation is far from its target, but concentrates more on output stabilization when inflation is close to its target, allowing supply shocks and unforeseen fluctuations in aggregate demand to move inflation within a certain band. We use stochastic simulations of a small-scale rational expectations model to contrast the behavior of output and inflation under opportunistic and linear rules. Klassifikation: E31, E52, E58, E61. July, 2005.

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Author:Yunus Aksoy, Athanasios OrphanidesORCiDGND, David Small, Volker WielandORCiDGND, David Wilcox
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,19
Series (Serial Number):CFS working paper series (2005, 19)
Document Type:Working Paper
Year of Completion:2005
Year of first Publication:2005
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/09/05
Tag:Inflation targeting; disinflation; interest rates; monetary policy; policy rules
GND Keyword:Inflation Targeting; Geldpolitik; Zinsfuß; Disinflation
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht