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Is Delayed Disinflation More Costly?

Author

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  • Charles L. Weise

    () (School of Business Administration, College of William and Mary)

  • Charles L. Weise

    (Department of Economics, Gettysburg College)

Abstract

An often-stated piece of monetary policy wisdom is that postponing disinflation raises the ultimate cost of disinflation. However, there is little empirical work that directly tests the validity of this view. This paper is a study of the relation between the duration of inflation and the cost of subsequent disinflation using 67 disinflation episodes in OECD countries from 1960 through 1993. The estimates indicate that delaying disinflation raises the output loss per unit of inflation reduction, although the effect is not statistically significant in all models. The largest marginal effects of delay occur soon after inflation is allowed to get under way, a finding consistent with a rapid decline in the credibility of the inflating central bank.

Suggested Citation

  • Charles L. Weise & Charles L. Weise, 2001. "Is Delayed Disinflation More Costly?," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 701-712, January.
  • Handle: RePEc:sej:ancoec:v:67:3:y:2001:p:701-712
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    Cited by:

    1. Patrick Fève & Julien Matheron & Jean-Guillaume Sahuc, 2010. "Disinflation Shocks in the Eurozone: A DSGE Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 289-323, March.
    2. Patrick Fève & Julien Matheron & Jean-Guillaume Sahuc, 2010. "Inflation Target Shocks and Monetary Policy Inertia in the Euro Area," Economic Journal, Royal Economic Society, vol. 120(547), pages 1100-1124, September.
    3. repec:dau:papers:123456789/12493 is not listed on IDEAS

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