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Imperfectly-credible disinflation of small inflations.

Evans, Lynne and Nicolae, Anamaria (2010) 'Imperfectly-credible disinflation of small inflations.', Working Paper. Durham University, Durham.

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.

Item Type:Monograph (Working Paper)
Keywords:Price stability, Velocity, Disinlfation, Output boom, Optimal speed of disinlfation, JEL classifcation: E20 E32 F32 F41.
Full text:PDF - Published Version (190Kb)
Status:Not peer-reviewed
Publisher Web site:http://www.dur.ac.uk/business/faculty/working-papers/
Record Created:07 Dec 2012 10:37
Last Modified:16 Oct 2013 13:30

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