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Do Institutional Factors Matter for the Speed of Disinflation?

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  • Andreas M. Fischer

Abstract

A central issue for macroeconomic policy is the optimal speed of disinflation. The cold turkey view states that a credible disinflation is less costly if it is quick. An alternative view is that gradualism is less costly because of frictions in wage and price setting. Institutional factors, such as central bank independence or labor market structure, are argued to be important in influencing expectations or wage responsiveness. The paper examines whether various institutional factors explain the disinflation path taken by 21 OECD countries. The cross country analysis finds that institutional factors have no influence on the speed of disinflation; most important is the level of inflation before the disinflation.

Suggested Citation

  • Andreas M. Fischer, 1997. "Do Institutional Factors Matter for the Speed of Disinflation?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 539-556, September.
  • Handle: RePEc:ses:arsjes:1997-iii-13
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    References listed on IDEAS

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    1. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 975-1009.
    2. Arthur Grimes & Jason Wong, 1992. "The role of the exchange rate in New Zealand monetary policy," Proceedings, Federal Reserve Bank of San Francisco, pages 176-197.
    3. Fernando Barran & Virginie Coudert & BenoƮt Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
    4. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, pages 901-921.
    5. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
    6. Grilli, Vittorio & Roubini, Nouriel, 1996. "Liquidity models in open economies: Theory and empirical evidence," European Economic Review, Elsevier, vol. 40(3-5), pages 847-859, April.
    7. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, pages 869-902.
    8. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, pages 901-921.
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    Cited by:

    1. Giamattei, Marcus, 2015. "Cold Turkey vs. gradualism: Evidence on disinflation strategies from a laboratory experiment," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-67-15, University of Passau, Faculty of Business and Economics.
    2. William D. Lastrapes & W. Douglas McMillin, 2004. "Cross-Country Variation in the Liquidity Effect: The Role of Financial Markets," Economic Journal, Royal Economic Society, vol. 114(498), pages 890-915, October.
    3. Franz R. Hahn & Peter Mooslechner, 1999. "Underpinnings of the European System of Central Banks," WIFO Monatsberichte (monthly reports), WIFO, pages 49-60.

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