A Disinflation Trade-Off: Speed Versus Final Destination

John Carlson and Neven Valev

Economic Inquiry, 2002, vol. 40, issue 3, 450-456

Abstract: When introducing a new monetary regime designed to reduce inflation, does a central bank prefer more or fewer economic agents who form informed forecasts of inflation? The relevance of the question arises because the central bank can make a decision about how much information to disseminate about the nature of the new regime. We find that the central bank will prefer a higher proportion of agents who form rational expectations if it disinflates from a high level of inflation, but not so if it disinflates from a moderate or low inflation level. Copyright 2002, Oxford University Press.

Date: 2002
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