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Disinflation Shocks in the Eurozone: a DSGE Perspective

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  • Fève, Patrick
  • Matheron, Julien
  • Sahuc, Jean-Guillaume

Abstract

We investigate the effects of disinflation policies on key macroeconomic variables. Using euro area data and structural vector autoregressions (SVARs), we identify disinflation shocks as the only shocks that drive nominal variables to a lower long-run level. We find that in the immediate aftermath of a disinflation shock, the euro area enters in a persistent recession. We use these dynamic responses to estimate a DSGE model with imperfect information about the disinflation shock. We find that both nominal and real frictions and monetary policy gradualism have played a prominent role in the recessionary effect of disinflation shocks. Conversely, allowing for imperfect credibility does not yield a better fit, except when we shut key model's frictions down. Copyright (c) 2010 The Ohio State University.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 483.

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Date of creation: Nov 2007
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Publication status: Published in Journal of Money, Credit and Banking, vol.�42, n°2-3, mars 2010, p.�289-323.
Handle: RePEc:ide:wpaper:7771

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Citations

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Cited by:
  1. Guido Ascari & Tiziano Ropele, . " Sacrifice Ratio or Welfare Gain Ratio? Disinflation in a DGSE monetary model," CDMA Conference Paper Series 0806, Centre for Dynamic Macroeconomic Analysis.
  2. Guido Ascari & Tiziano Ropele, 2009. "Disinflation in a DSGE Perspective: Sacrifice Ratio or Welfare Gain Ratio?," Kiel Working Papers 1499, Kiel Institute for the World Economy.
  3. Guido Ascari & Tiziano Ropele, 2012. "Disinflation effects in a medium-scale New Keynesian model: money supply rule versus interest rate rule," Temi di discussione (Economic working papers) 867, Bank of Italy, Economic Research and International Relations Area.
  4. Pfister, C., 2007. "Labour market flexibility: what does Banque de France research tell us?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 10, pages 79-93, Winter.
  5. Krause, Michael U. & Moyen, Stéphane, 2013. "Public debt and changing inflation targets," Discussion Papers 06/2013, Deutsche Bundesbank, Research Centre.

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