Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212213 
Year of Publication: 
2012
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 10/2012
Publisher: 
Bank of Finland, Helsinki
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.
Subjects: 
Disinflation
Escape Dynamics
Learning
Monetary Policy
JEL: 
D83
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-795-5
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.