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Author: | Balvers, R. Cosimano, T. |
Title: | Inflation variability and gradualist monetary policy |
Journal: | Review of Economic Studies
1994 : OCT, VOL. 61:209, p. 721-738 |
Index terms: | INFLATION VARIABLE COSTING MONETARY POLICY |
Language: | eng |
Abstract: | This paper considers the optimal approach to reducing inflation when the cost of inflation is its conditional variability. Inflation is stochastically related to money growth, with unobservable time-varying autonomous and indirect components. A sharp reduction in money growth provides information about responsiveness of inflation to money, but also induces variability as the economy heads into unknown territory. The model explains why moderate-inflation countries adopt a much more gradual money growth reduction than high-inflation countries. |
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