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Imperfectly Credible Disinflation under Endogenous Time-Dependent Pricing

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  • Marco Bonomo

    (Graduate School of Economics, Getulio Vargas Foundation)

  • Carlos Viana de Carvalho

    (Princeton University)

Abstract

The real effects of an imperfectly credible disinflation depend critically on the extent of price rigidity. Therefore, the study of how the policymaker's credibility affects the outcome of an announced disinflation should not be dissociated from the analysis of the determinants of the frequency of price adjustments. In this paper we examine the output effects of an imperfectly credible monetary disinflation in a model with endogenous time-dependent pricing rules. We take as the base case a disinflation policy with a constant degree of credibility, and show that the interaction between the endogeneity of time-dependent rules and imperfect credibility increases the output costs of disinflation. We also study the case in which the monetary authority gains credibility during the disinflation as agents update their beliefs.

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Paper provided by EconWPA in its series Macroeconomics with number 0509005.

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Date of creation: 04 Sep 2005
Date of revision: 09 Sep 2005
Handle: RePEc:wpa:wuwpma:0509005

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Cited by:
  1. Carlos Carvalho & Fernanda Nechio, 2008. "Aggregation and the PPP puzzle in a sticky-price model," Staff Reports 351, Federal Reserve Bank of New York.
  2. Marco Bonomo & Arnildo da Silva Correa & Marcelo Cunha Medeiros, 2013. "Estimating Strategic Complementarity in a State-Dependent Pricing Model," Working Papers Series 341, Central Bank of Brazil, Research Department.
  3. Aloisio Araujo & Mário R. Páscoa & Juan Pablo Torres-Martínez, 2006. "Bubbles, Collateral and Monetary Equilibrium," Levine's Working Paper Archive 122247000000001055, David K. Levine.
  4. Renato G. Fl�res & Maria Paula Fontoura & Rog�rio Guerra Santos, 2007. "Foreign Direct Investment Spillovers in Portugal: Additional Lessons from a Country Study," European Journal of Development Research, Taylor and Francis Journals, vol. 19(3), pages 372-390.
  5. Rivano, Ricardo de Oliveira & Wallace, Neil, 2006. "New models of old(?) payment questions," Economics Working Papers (Ensaios Economicos da EPGE) 619, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Cysne, Rubens Penha, 2006. "Income Inequality in a Job-Search Model With Heterogeneous Discount Factors (Revised Version, Forthcoming 2006, Revista Economia)," Economics Working Papers (Ensaios Economicos da EPGE) 611, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  7. Iana Ferrão de Almeida, 2011. "DesinflaçõesMonetárias sob Heterogeneidade e Regras EndógenasDependentes do Tempo," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 51, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  8. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special Interests and Political Business Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 597, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  9. Flôres Junior, Renato Galvão & Watanuki, Masakazu, 2006. "Integration Options for Mercosul - An Investigation Using the AMIDA Model," Economics Working Papers (Ensaios Economicos da EPGE) 610, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  10. James Yetman, 2007. "Explaining hump-shaped inflation responses to monetary policy shocks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 605-617.
  11. Cysne, Rubens Penha, 2006. "An Intra-Household Approach to the Welfare Costs of Inflation (Revised Version, Forthcoming 2006, Estudos Econômicos)," Economics Working Papers (Ensaios Economicos da EPGE) 612, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  12. Lynne Evans & Anamaria Nicolae, 2010. "Imperfectly-Credible Disinflation of Small Inflations," Working Papers 2010_01, Durham University Business School.
  13. Demery, David, 2012. "State-dependent pricing and the non-neutrality of money," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 933-944.
  14. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
  15. Monteiro, Paulo Klinger, 2004. "First-Price auction symmetric equlibria with a general distribution," Economics Working Papers (Ensaios Economicos da EPGE) 568, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  16. Marc Hofstetter, 2008. "Sticky Prices and Moderate Inflation," DOCUMENTOS CEDE 005856, UNIVERSIDAD DE LOS ANDES-CEDE.

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