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Imperfectly Credible Disinflation under Endogenous Time-Dependent Pricing

  • Carvalho, Carlos Viana de
  • Bonomo, Marco Antônio Cesar

The real effects of an imperfectly credible disinflation depend critically on the extent of price rigidity. We examine this interaction in a model with endogenous time-dependent pricing. Both the endogenous initial degree of price rigidity and changes in the duration of price spells during disinflation are important in explaining the effects of imperfect credibility. We initially consider a setup where the degree of credibility is fixed and then allow agents to update beliefs about the "type" of monetary authority that they face. In both cases, the interaction between endogeneity of pricing behavior and imperfect credibility increases the output costs of disinflation. Copyright (c) 2010 The Ohio State University.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 600.

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Date of creation: 01 Aug 2005
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Handle: RePEc:fgv:epgewp:600
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