A Quantitative Exploration of the Opportunistic Approach to Disinflation

Posted: 30 Aug 2005

See all articles by Yunus Aksoy

Yunus Aksoy

Birkbeck, University of London

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 2005

Abstract

Under a conventional policy rule, a central bank adjusts its policy rate linearly according to the gap between inflation and its target, and the gap between output and its potential. Under the opportunistic approach to disinflation a central bank controls inflation aggressively when inflation is far from its target, but concentrates more on output stabilization when inflation is close to its target, allowing supply shocks and unforeseen fluctuations in aggregate demand to move inflation within a certain band. We use stochastic simulations of a small-scale rational expectations model to contrast the behavior of output and inflation under opportunistic and linear rules.

Keywords: Inflation targeting, monetary policy, interest rates, policy rules, disinflation

JEL Classification: E31, E52, E58, E61

Suggested Citation

Aksoy, Yunus and Orphanides, Athanasios and Small, David H. and Wieland, Volker and Wilcox, David W., A Quantitative Exploration of the Opportunistic Approach to Disinflation (July 2005). CFS Working Paper No. 2005/19. Available at SSRN: https://ssrn.com/abstract=789364

Yunus Aksoy

Birkbeck, University of London ( email )

Malet Street
Room: 726
London WC1E 7HX
United Kingdom
+44 (0) 20 7631 6407 (Phone)
+44 (0) 20 7631 6416 (Fax)

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
Gr├╝neburgplatz 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

Register to save articles to
your library

Register

Paper statistics

Abstract Views
627
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information