Contents -- I. Introduction -- II. The Model -- A. Inflation Process with Endogenous Credibility -- A.1 Inflation equation-an expectations-augmented Phillips curve -- A.2 Output Gap equation -- A.3 Exchange rate-real interest rate parity equation -- A.4 Monetary policy loss function -- A.5 Note on calibration -- III. Optimal Disinflation -- A. Initial Condition -- B. Disinflation Under Various Degrees of Credibility -- IV. Optimal Responses to Shocks -- A. Initial Conditions -- B. Supply Shocks -- C. Demand Shocks -- V. Costs of Delaying Interest Rate Increase Under Imperfect Credibility -- VI. Concluding Remarks -- References -- Figures -- 1. Disinflation with Equal Weights on Inflation, Output and Interest Rate Variability -- 2. Disinflation with Lower Weights on Output and Interest Rate Variability -- 3. Responses to Unfavorable and Favorable Supply Shocks (Positive Shock Circle -- Negative Shock Triangle) -- 4. Responses to Positive and Negative Demand Shocks (Positive Shock Circle Negative Shock Triangle -- 5. Cost of Delaying Interest Rate Hikes in Response to an Unfavorable Supply Shock in an Economy with High Inflation and Low Initial Credibility (No Delay Triangle -- Delay Circle).