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The output effect of stopping inflation when velocity is time varying

Evans, L.; Nicolae, A.

The output effect of stopping inflation when velocity is time varying Thumbnail


Authors

L. Evans

A. Nicolae



Abstract

This paper explores the effect of time varying velocity in a transition to price stability. Nonstationary velocity, expressed as function of consumption, is made endogenous in Ireland’s (1997) model. We find that the ‘disinflationary booms’ found by Ball (1994) may or may not disappear; and also that temporary output losses may be much larger than previously thought, depending on velocity. A gradual disinflation of low inflation may even be undesirable given its overall negative impact on the economy. Finally, we explore the optimal speed of disinflation.

Citation

Evans, L., & Nicolae, A. (2007). The output effect of stopping inflation when velocity is time varying. Durham Business School working papers series, WP-109,

Journal Article Type Article
Online Publication Date Aug 1, 2007
Publication Date Aug 1, 2007
Deposit Date Mar 9, 2009
Publicly Available Date Mar 29, 2024
Publisher Durham Business School
Peer Reviewed Not Peer Reviewed
Volume WP-109
Keywords Price stability, Velocity, Disinflation, Output boom,
Optimal speed of disinflation.
Publisher URL http://www.dur.ac.uk/dbs/faculty/working-papers/

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