The close relationship between the inflation rate and economic productivity and efficiency implies that a disinflation policy needs to be implemented by consistently complying with the principles of gradualism and balance. Overly tight monetary policy amidst rather low economic productivity and inefficiency can lead to recession. Meanwhile, too loose monetary policy amidst low productivity and inefficiency can turn the economy inflationary and not propoor.
- 13 Orphanides, Athanasios, Richard D. Porter, David Reifschneider, Robert Tetlow, and Frederico Finan (2000). “Errors in the Measurement of the Output Gap and the Design of Monetary Policy,” Journal of Economics and Business, vol. 52 (January–April), pp. 117–41. Orphanides, Athanasios, and John C. Williams (2005).