Considerations in Reducing Inflation From Low to Lower Levels
International Monetary Fund, 1998 - Deflation (Finance) - 20 pages
In recent years, many countries have successfully reduced their inflation rates to relatively low levels of 2 to 3 percent. The question then arises as to whether it would be desirable to move to even lower rates of inflation. The paper examines the benefits and costs of moving from low inflation to even lower inflation by drawing together recent work on this issue. Once a country has decided to move to an even lower rate of inflation, the question then becomes whether it would be better to achieve this objective through inflation targeting or price-level targeting. The paper critically reviews the arguments for both approaches.
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0.75 SDT outcome 4-quarter annualized moving adjust aggregate demand Akerlof annualized moving average Canada central bank confidence interval Core inflation deadweight loss deflation Dev of mean downward nominal wage downward rigidities estimation bias ex ante exchange rates Fortin further disinflation future price level grease inflation outcome inflation shocks inflation targeting regime inflation variance INTERNATIONAL MONETARY FUND labor market low rates low-inflation environment Mean 4-quarter annualized Mean TT outcome monetary policy moving average ſt negative real interest nominal interest rate nominal rigidities nominal wage rigidities output and employment percent inflation period permanent trade-off Phillips curve policy rule price stability Price-level targeting need price-level targeting regime price-level versus inflation quarterly Tt outcome rate of inflation real interest rates real wages reducing inflation reduction in inflation Simulation stance of monetary Std Dev supply shocks tend Tt outcome target unemployment rate variability versus inflation targeting wage changes wage cuts wage freezes wage settlements workers