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Return The Output Effect of Stopping Inflation when Velocity is Time Varying

Author

Listed:
  • Lynne Evans

    (Newcastle University Business School)

  • Anamaria Nicolae

    (Durham Business School)

Abstract

This paper explores the effect of time varying velocity in a transition to price stability. Nonstationary velocity, expressed as function of consumption, is made endogenous in Ireland's (1997) model. We find that the disinflationary booms found by Ball (1994) may or may not disappear; and also that temporary output losses may be much larger than previously thought, depending on velocity. A gradual disinflation of low inflation may even be undesirable given its overall negative impact on the economy. Finally, we explore the optimal speed of disinflation.

Suggested Citation

  • Lynne Evans & Anamaria Nicolae, 2007. "Return The Output Effect of Stopping Inflation when Velocity is Time Varying," Working Papers 2007_06, Durham University Business School.
    • Handle: RePEc:dur:durham:2007_06
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    File URL: http://dro.dur.ac.uk/10368
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    References listed on IDEAS

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    1. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2003. "Optimal Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(4), pages 825-860.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    price stability; velocity; disinlfation; output boom; optimal speed of disinlfation;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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