Policy Accommodation and Gradual Stabilizations.

Gradual stabilizations are usually the result of policy accommodation that attempts to avoid the recessionary costs of a sharp reduction of inflation. This paper presents two models that are consistent with the fact that, despite their dislike of inflation, policymakers nevertheless most often choose to adopt accommodative policies and implement gradual stabilization programs. The models presented in this paper emphasize the role of backward-looking indexation and the existence of fixed costs associated with the implementation of a stabilization program. Copyright 1995 by Ohio State University Press.