A Quantitative Exploration of the Opportunistic Approach to Disinflation

Board of Governors of the Federal Reserve System Finance and Econ. Disc. Series 97-36

42 Pages Posted: 10 Feb 1998

See all articles by Athanasios Orphanides

Athanasios Orphanides

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David H. Small

Federal Reserve Board - Monetary Studies Section

Volker Wieland

University of Frankfurt

David W. Wilcox

Federal Reserve Board - Division of Research and Statistics

Date Written: June 1997

Abstract

A number of observers have advocated recently that the Federal Reserve take an "opportunistic" approach to the conduct of monetary policy. A hallmark of this approach is that the central bank focuses on fighting inflation when inflation is high but focuses on stabilizing output when inflation is low. The implied policy rule is nonlinear. This paper compares the behavior of inflation and output under opportunistic and conventional linear policies. Using stochastic simulations of a small-scale rational expectations model, we study the cost and time required to achieve a given disinflation, as well as the steady-state distributions of inflation and output under the various rules.

JEL Classification: E52

Suggested Citation

Orphanides, Athanasios and Small, David H. and Wieland, Volker and Wilcox, David W., A Quantitative Exploration of the Opportunistic Approach to Disinflation (June 1997). Board of Governors of the Federal Reserve System Finance and Econ. Disc. Series 97-36. Available at SSRN: https://ssrn.com/abstract=56155 or http://dx.doi.org/10.2139/ssrn.56155

Athanasios Orphanides (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=54058

David H. Small

Federal Reserve Board - Monetary Studies Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Volker Wieland

University of Frankfurt ( email )

House of Finance
Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

David W. Wilcox

Federal Reserve Board - Division of Research and Statistics ( email )

20th and C Streets, NW
Mailstop 153
Washington, DC 20551
United States

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