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Disinflation Shocks in the Eurozone: a DSGE Perspective

Listed author(s):
  • Fève, Patrick
  • Matheron, Julien
  • Sahuc, Jean-Guillaume

We investigate the effects of disinflation policies on key macroeconomic variables. Using euro area data and structural vector autoregressions (SVARs), we identify disinflation shocks as the only shocks that drive nominal variables to a lower long-run level. We find that in the immediate aftermath of a disinflation shock, the euro area enters in a persistent recession. We use these dynamic responses to estimate a DSGE model with imperfect information about the disinflation shock. We find that both nominal and real frictions and monetary policy gradualism have played a prominent role in the recessionary effect of disinflation shocks. Conversely, allowing for imperfect credibility does not yield a better fit, except when we shut key model's frictions down. Copyright (c) 2010 The Ohio State University.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 483.

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Date of creation: Nov 2007
Publication status: Published in Journal of Money, Credit and Banking, vol. 42, n°2-3, mars 2010, p. 289-323.
Handle: RePEc:ide:wpaper:7771
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