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Transitional and Steady‐state Costs of Disinflattion When Growth is Endogenou

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  • Tor Einarsson
  • Milton H. Marquis

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 persistance; 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 thhat occur along the transitio 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.

Suggested Citation

  • Tor Einarsson & Milton H. Marquis, 1999. "Transitional and Steady‐state Costs of Disinflattion When Growth is Endogenou," Economica, London School of Economics and Political Science, vol. 66(264), pages 489-508, November.
    • Handle: RePEc:bla:econom:v:66:y:1999:i:264:p:489-508
    DOI: 10.1111/1468-0335.00185
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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. Arman Mansoorian & Leo Michelis, 2016. "Measuring the contribution of durable goods to the welfare cost of inflation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(2), pages 815-833, May.
    3. Shimotsu, Tor, 2002. "Small Open Economy Model with Domestic Resource Shocks: Monetary Union vs. Floating Exchange Rate," Economics Discussion Papers 8841, University of Essex, Department of Economics.

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