The impact of imperfect credibility in a transition to price stability

Nicolae, A.; Nolan, C.

Abstract

In this paper we study the impact of a temporary lack of credibility in a transition to price stability.We quantify the effects of a period of disinflation on temporary output losses, and the impact of the lack of credibility on the optimal speed of disinflation. We demonstrate that the "disinflationary booms" found by Ball (1994) and Ireland (1997) may or may not disappear in an environment with imperfect credibility, depending on the speed of learning relative to the speed of disinflation. Finally, we enquire whether the speed of the Volcker disinflation was excessive or not.

Citation

Nicolae, A., & Nolan, C. (2006). The impact of imperfect credibility in a transition to price stability. Journal of Money, Credit and Banking, 38(1), 47-66

• Journal Article Type: Article
• Publication Date: 2006-02
• Deposit Date: Aug 21, 2008
• Publicly Available Date: Aug 21, 2008
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 38
• Issue: 1
• Pages: 47-66
• Keywords: Price stability, Imperfect credibility, Optimal speed of disinflation.
• Public URL: https://durham-repository.worktribe.com/output/1631733
• Publisher URL: http://web.econ.ohio-state.edu/jmcb/Volume38No1.php