Optimal disinflationary paths
This paper characterizes optimal monetary policy in the context of a general equilibrium model with optimizing agents and staggered price setting. Starting from a steady state with positive inflation, a rapid disinflation is desirable when announcements of future monetary policy are fully credible. Disinflationary policy yields substantial losses in output and employment when the monetary authority lacks credibility; nevertheless, the benefits of disinflation still exceed the costs. Disinflation often fails to be welfare-improving, however, when lost seignorage revenues must be replaced using other distortionary taxes.
|Date of creation:||1995|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.richmondfed.org/|
More information through EDIRC
|Order Information:|| Web: http://www.richmondfed.org/publications/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stanley Fischer, 1984. "Contracts, Credibility, and Disinflation," NBER Working Papers 1339, National Bureau of Economic Research, Inc.
- Cooley, T.F. & Cho, J.O., 1991.
"The Business Cycle with Nominal Contracts,"
90-07, Rochester, Business - General.
- Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
- Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March.
- W. Lee Hoskins, 1991. "Defending zero inflation: all for naught," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
- Lucas, Deborah, 1999. "Price and interest rate dynamics induced by multiperiod contracts," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 315-338.
- Lee E. Ohanian & Alan C. Stockman, 1994. "Short-run effects on money when some prices are sticky," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-24.
- Cooley, T.F. & Hansen, G.D., 1988.
"The Inflation Tax In A Real Business Cycle Model,"
RCER Working Papers
155, University of Rochester - Center for Economic Research (RCER).
- Laurence Ball, 1990.
"Credible Disinflation with Staggered Price Setting,"
NBER Working Papers
3555, National Bureau of Economic Research, Inc.
- Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-89, March.
- anonymous, 1987. "Comment on proposed actions," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 296-297.
- Cooley, Thomas F & Hansen, Gary D, 1991.
"The Welfare Costs of Moderate Inflations,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 23(3), pages 483-503, August.
- Edmund Phelps, 1978. "Disinflation without recession: Adaptive guideposts and monetary policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 783-809, December.
- Robert G. King, 1991. "Money and business cycles," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Robert P. Black, 1990. "In support of price stability," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 3-6.
- Danziger, Leif, 1988. "Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation," American Economic Review, American Economic Association, vol. 78(4), pages 633-46, September.
- W. Lee Hoskins, 1991. "Defending zero inflation: all for naught," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 16-20.
- S. Rao Aiyagari, 1990. "Deflating the case for zero inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
- Taylor, John B, 1983.
"Union Wage Settlements during a Disinflation,"
American Economic Review,
American Economic Association, vol. 73(5), pages 981-93, December.
When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:95-01. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins)
If references are entirely missing, you can add them using this form.