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Transitional and Steady-State Costs of Disinflation When Growth Is Endogenous

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  • Einarsson, Tor
  • Marquis, Milton H

Abstract

In a monetary version of the Uzawa (1965)-Lucas (1988) model of endogenous growth, this paper illustrates how a credible policy of rapid disinflation can induce temporary declines in employment and output, with the former exhibiting a significant degree of persistence; however, these temporary declines in employment and output are not associated with any nominal rigidities in the economy, and therefore do not represent dead-weight losses that occur along the transition path, but are instead a part of an optimal response to the policy change. The measured welfare benefits of disinflation are seen to be higher when the transition path is taken into account. Copyright 1999 by The London School of Economics and Political Science

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 66 (1999)
Issue (Month): 264 (November)
Pages: 489-508

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Handle: RePEc:bla:econom:v:66:y:1999:i:264:p:489-508

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Cited by:
  1. Milton H. Marquis, 2001. "Inflation taxes, financial intermediation, and home production," Working Paper Series 2001-04, Federal Reserve Bank of San Francisco.
  2. C.K. Folkertsma, 2000. "Liquidity Effects and Welfare Costs of Inflation in an EndogenousGrowth Model," DNB Staff Reports (discontinued) 54, Netherlands Central Bank.
  3. C. K. Folkertsma, 2000. "Liquidity effects and the welfare costs of inflation in an endogenous growth model," WO Research Memoranda (discontinued) 607, Netherlands Central Bank, Research Department.
  4. Tor Einarsson, 2002. "Small Open Economy Model with Domestic Resource Shocks: Monetary Union versus Floating Exchange Rate," Economics Discussion Papers 538, University of Essex, Department of Economics.

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