An Explanation of Asymmetric Effects of Inflation Targeting <Article>

Matsukawa, Okamura and Taki (2012) show that in a neoclassical Phillips curve model, two types of discretionary equilibria can be characterized as a deflationary equilibrium and a highinflation equilibrium and the absolute value of feedback coefficient on the lagged output gap is larger for the former. This paper points out that inflation targeting can be supported by activist monetary policy in bringing inflation down, if the economy is in a high-inflation equilibrium, but not in getting out of the deflationary trap if the economy is in a deflationary equilibrium.