Imperfectly-credible disinflation of small inflations

Evans, Lynne; Nicolae, Anamaria

Abstract

In this paper we study and quantify the e¤ects of a disinflationary policyon output and welfare. Our focus is the policy question of the optimal response to low inflation.The analysis takes place in the context of a DSGEmodel with sticky prices, time varying velocity and imperfect credibility.The nonlinear solution method reveals that early output losses may be morepronounced and more prolonged than previously suggested in the literature,and there may be insufficient compensation from a subsequent higher steadystate to justify taking any disinflationary policy action in some cases.

Citation

Evans, L., & Nicolae, A. (2010). Imperfectly-credible disinflation of small inflations

• Working Paper Type: Working Paper
• Publication Date: Jan 1, 2010
• Deposit Date: Dec 7, 2012
• Publicly Available Date: Dec 7, 2012
• Series Title: Durham University Business School Economics Finance Accounting Working Papers
• Keywords: Price stability, Velocity, Disinlfation, Output boom, Optimal speed of disinlfation, JEL classifcation: E20 E32 F32 F41.
• Public URL: https://durham-repository.worktribe.com/output/1699652
• Publisher URL: http://www.dur.ac.uk/business/faculty/working-papers/