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The output effect of a transition to price stability when velocity is time-varying.

Evans, L. and Nicolae, A. (2010) 'The output effect of a transition to price stability when velocity is time-varying.', Journal of money, credit and banking., 42 (5). pp. 859-878.

Abstract

This paper explores the effect of time-varying velocity on output responses to policies for reducing/stopping inflation. We study a dynamic general equilibrium model with sticky prices in which we introduce time-varying velocity. Specifically, we endogenize time-varying velocity into the model developed by Ireland (1997) for analyzing optimal disinflation. The nonlinear solution method reveals that, depending on velocity, the “disinflationary boom” found by Ball (1994) may disappear even under perfect credibility and that early output losses may be much larger than previously thought. Indeed, we find that a gradual disinflation from a low inflation may even be undesirable.

Item Type:Article
Additional Information:Published on behalf of The Ohio State University.
Keywords:Price stability, Velocity, Disinflation, Output boom, Optimal speed of disinflation.
Full text:Full text not available from this repository.
Publisher Web site:http://dx.doi.org/10.1111/j.1538-4616.2010.00310.x
Record Created:17 Nov 2010 11:05
Last Modified:21 Nov 2012 10:33

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