Understanding the Opportunistic Approach to Disinflation

A. Patrick Minford and Naveen Srinivasan

No 3938, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Deliberate disinflation; Opportunistic disinflation; Loss function (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2003-06
New Economics Papers: this item is included in nep-mon
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