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Obstacles to disinflation: what is the role of fiscal expectations?

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  • Oya Celasun
  • R. Gaston Gelos
  • Alessandro Prati

Abstract

"Persistently high expected inflation often makes it difficult for policy-makers to recover from inflationary episodes without substantial output losses. Using survey data from eleven disinflation episodes, we can assess whether the more or less sluggish decline of inflation rates towards lower target levels is related to backward-looking pricing behavior or to imperfect credibility of the stabilization efforts. We find that expectations of future inflation play a much more important role than past inflation in shaping the inflation process. Second, we find that an improvement in various measures of fiscal balances significantly reduces inflation expectations. This evidence suggests that, when attempting to stabilize inflation, priority should be given to building fiscal credibility." Copyright � CEPR, CES, MSH, 2004.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 19 (2004)
Issue (Month): 40 (October)
Pages: 441-481

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Handle: RePEc:bla:ecpoli:v:19:y:2004:i:40:p:441-481

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Cited by:
  1. A. Hakan Kara, 2008. "Turkish Experience With Implicit Inflation Targeting," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 8(1), pages 1-16.
  2. Martin Cerisola & Gaston Gelos, 2009. "What drives inflation expectations in Brazil? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1215-1227.
  3. Yusuf Soner Baskaya & Hakan Kara & Defne Mutluer, 2008. "Expectations, Communication and Monetary Policy in Turkey," Working Papers 0801, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. International Monetary Fund, 2005. "Inflation Targeting Lite' in Small Open Economies," IMF Working Papers 05/172, International Monetary Fund.
  5. Selva Demiralp & Hakan Kara & Pinar Ozlu, 2011. "Monetary Policy Communication Under Inflation Targeting : Do Words Speak Louder Than Actions?," Working Papers 1118, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Alessandro Rebucci & Marco Rossi, 2004. "Measuring Disinflation Credibility in Emerging Markets," IMF Working Papers 04/208, International Monetary Fund.
  7. Joerg Bibow, 2006. "Inflation Persistence and Tax-Push Inflation in Germany and in the Euro Area: A Symptom of Macroeconomic Mismanagement?," IMK Studies 01-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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