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A quantitative exploration of the opportunistic approach to disinflation

Aksoy, Yunus and Orphanides, A. and Small, D. and Wieland, V. and Wilcox, D. (2006) A quantitative exploration of the opportunistic approach to disinflation. Journal of Monetary Economics 53 (8), pp. 1877-1893. ISSN 0304-3932.

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Official URL: http://dx.doi.org/10.1016/j.jmoneco.2005.08.015

Abstract

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.

Item Type: Article
Keyword(s) / Subject(s): Inflation targeting, monetary policy, interest rates, policy rules, disinflation
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Dr Yunus Aksoy
Date Deposited: 26 Mar 2008 15:07
Last Modified: 17 Apr 2013 12:16
URI: http://eprints.bbk.ac.uk/id/eprint/667

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