2004 Fiscal Year Final Research Report Summary
Explaining the Variation in the Costs of Reducing Inflation on the Assumption of Adaptive Expectations.
| Project/Area Number |
15530216
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | HIROSHIMA UNIVERSITY |
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Principal Investigator |
SENDA Takashi Hiroshima University, Graduate School of Social Sciences, Associate Professor, 大学院・社会科学研究科, 助教授 (00304387)
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| Project Period (FY) |
2003 – 2004
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| Keywords | Monetary policy / Sacrifice ratio / Adaptive expectations / Taylor rule / Phillips curve / Inflation / Output-inflation tradeoff |
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| Research Abstract |
Two new papers are written and one paper is revised and published during the 2003-2004 research period. The following are the titles and abstracts of these papers.
1.Determining Output and Inflation Variability : Are the Phillips Curve and the Monetary Policy Reaction Function Responsible?
This study analyzes the policy parameters in a Taylor monetary policy reaction function and a Phillips curve equation to determine the variability of inflation and output. The theoretical and empirical investigations yield two key results. First, countries with large parameters in the monetary policy reaction function have low and stable inflation. Second, countries with flatter Phillips curve (i.e., those with a higher degree of price stickiness) have larger output variability. This article also examines the determinants of inflation and output variability as well as determinants of the slope of the Phillips curve.
2.Explaining the Variation in the Costs of Reducing Inflation on the Assumption of Adapt
… More
ive Expectations. (A joint paper)
This paper attempts to explain the variation in the costs of reducing inflation on the assumption of adaptive expectations. When expectations of inflation are formed "adaptively," the sacrifice ratio is determined by the slope of the Phillips curve, the speed at which individuals revise their expectations, and past actual rates of inflation. Because the sacrifice ratio depends on the history of inflation, estimates of the ratios for individual disinflation episodes vary substantially. We show that a more stable sacrifice ratio can be obtained by defining the ratio as the number of percentage points of a year's real GDP that must be forgone to reduce expected inflation by 1 percentage point. This sacrifice ratio is suitable for analyzing a relationship between the adjustment speed of expected inflation and the cost of disinflation since it only depends on the Phillips curve slope and the adjustment speed of expected inflation, and not on past actual inflation. This study shows that policymakers can reduce the cost of reducing inflation by implementing a disinflation policy quickly. The empirical part of this study suggests that the cost of disinflation is larger than the cost of reflation since the adjustment speed for expected inflation is slower when inflation is decreasing.
3.Episode-Specific Evidence on the Relationship between Inflation and the Output-Inflation Tradeoff. (A joint paper) Less
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Research Products
(2 results)
