Theories of Policy Accommodation: The Persistence of Inflation and Gradual Stabilizations

Jose De Gregorio

No 1992/019, IMF Working Papers from International Monetary Fund

Abstract: Persistent inflation and slow stabilization are usually the result of policy accommodation resorted to in an attempt to avoid the recessionary costs of a sharp reduction of inflation. This paper reviews three explanations for why policymakers, despite their dislike of inflation, may nevertheless choose to adopt accommodative policies. It emphasizes the role of indexation, uncertainty about policymakers’ preferences, and the existence of fixed costs associated with the implementation of a stabilization program. The paper also presents some evidence on the extent of persistence of inflation across countries.

Keywords: WP; fixed cost; Phillips curve; full employment; monetary policy; random walk; time series; rate of inflation; impulse response function; inflation inertia; indexation component; gradual disinflation; model of indexation; persistent inflation rates; ensuing recession; Inflation; Inflation persistence; Disinflation; Global (search for similar items in EconPapers)
Pages: 26
Date: 1992-03-01
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Citations: View citations in EconPapers (4)

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