Research Discussion Papers, Bank of Finland
No 10/2012:
Learning by disinflating
Alina Barnett ()
and Martin Ellison ()
Abstract: Disinflationary episodes are a valuable source of
information for economic agents trying to learn about the economy. In this
paper we are particularly interested in how policymakers can themselves
learn by disinflating. The approach differs from the existing literature,
which typically focuses on the learning of private agents during a
disinflation. We build a model where both the policymaker and private
agents learn, and ask what happens if the policymaker has to disinflate to
satisfy a new central bank mandate specifying greater emphasis on inflation
stabilisation. In this case, our results show that inflation may fall
dramatically before it gradually rises to its new long run level. The
potential for inflation to undershoot its long run level during a
disinflationary episode suggests that caution should be exercised when
assessing the success of any change in the policymaker’s mandate.
Keywords: disinflation; escape dynamics; learning; monetary policy; (follow links to similar papers)
JEL-Codes: D83; E52; E58; (follow links to similar papers)
20 pages, March 30, 2012
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
BoF_DP_1210.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
