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Endogenous time-dependent rules and inflation inertia: preliminary version

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  • Carvalho, Carlos Viana de
  • Bonomo, Marco Antônio Cesar

Abstract

When policy rules are changed, the effect of nominal rigidities should be modelled through endogenous pricing rules. We endogenize Taylor (1979) type pricing rule to examine the output effects of monetary disinflations. We derive optimal fixed-price time-dependent rules in inflationary steady states and during disinflations. We also develop a methodology to aggregate individual pricing rules which vary through disinflation. This allows us to reevaluate the output costs of monetary disinflation, including aspects as the role of the initial leveI of inflation and the importance of the degree of credibility of the policy change.

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Bibliographic Info

Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 348.

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Date of creation: Jun 1999
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Handle: RePEc:fgv:epgewp:348

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Cited by:
  1. Marco Bonomo & Carlos Viana de Carvalho, 2005. "Endogenous Time-Dependent Rules and the Costs of Disinflation with Imperfect Credibility," Macroeconomics, EconWPA 0509004, EconWPA.
  2. Carvalho, Carlos Viana de & Bonomo, Marco Antônio Cesar, 2005. "Imperfectly Credible Disinflation under Endogenous Time-Dependent Pricing," Economics Working Papers (Ensaios Economicos da EPGE) 600, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  3. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(3), pages 1-58, December.
  4. Carlos Viana de Carvalho, 2005. "The Effects of Heterogeneity in Price Setting on Price and Inflation Inertia," Macroeconomics, EconWPA 0504039, EconWPA, revised 06 Sep 2005.
  5. Philippe Bacchetta & Eric van Wincoop, 2005. "Incomplete Information Processing: A Solution to the Forward Discount Puzzle," Working Papers 05.03, Swiss National Bank, Study Center Gerzensee.
  6. Rene Garcia & Marco Bonomo, 2004. "Optimal Rules under Adjustment Cost and Infrequent Information," Econometric Society 2004 Latin American Meetings, Econometric Society 135, Econometric Society.

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