Obstacles to Disinflation; What is the Role of Fiscal Expectations?
Is backward-looking behavior in pricing or imperfect credibility of stabilization efforts responsible for the failure of inflation rates to decline to targeted levels during many disinflation programs? This paper assesses the relative importance of these two factors during a number of disinflation attempts in developing and transition economies. Using survey data, we find that expectations of future inflation play a much more important role than past inflation in shaping the inflation process. We also find that an improvement in primary fiscal balances significantly reduces inflation expectations. This suggests that during stabilization episodes, priority should be given to building fiscal credibility by strengthening public finances.
|Date of creation:||01 Jun 2004|
|Date of revision:|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
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.:
- Jordi Galí & Mark Gertler, 1998.
"Inflation dynamics: A structural econometric analysis,"
Economics Working Papers
341, Department of Economics and Business, Universitat Pompeu Fabra.
- Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
- Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
- Jeremy B. Rudd & Karl Whelan, 2001.
"New tests of the New-Keynesian Phillips curve,"
Finance and Economics Discussion Series
2001-30, Board of Governors of the Federal Reserve System (U.S.).
- CELASUN Oya & GELOS Gaston & PRATI Alessandro, .
"Would “Cold Turkey” Work in Turkey?,"
- Buiter, Willem H. & Grafe, Clemens, 2001. "No Pain, No Gain? The Simple Analytics of Efficient Disinflation in Open Economies," CEPR Discussion Papers 3038, C.E.P.R. Discussion Papers.
- Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
- Esteban Jadresic, 2000. "Can Staggered Price Setting Explain Short-Run Inflation Dynamics?," Econometric Society World Congress 2000 Contributed Papers 0872, Econometric Society.
- Luis CatÃ£o & Marco Terrones, 2003.
"Fiscal Deficits and Inflation,"
IMF Working Papers
03/65, International Monetary Fund.
- Jan-Egbert Sturm & Jakob de Haan, 2001.
"Inflation in Developing Countries: Does Central Bank Independence Matter?,"
CESifo Working Paper Series
511, CESifo Group Munich.
- Sturm, Jan-Egbert & Haan, Jakob de, 2001. "Inflation in developing countries: does Central Bank independence matter?," CCSO Working Papers 200101, University of Groningen, CCSO Centre for Economic Research.
- Laurence Ball, 1992.
"Disinflation With Imperfect Credibility,"
NBER Working Papers
3983, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1990.
"Credibility and Stabilization,"
CEPR Discussion Papers
454, C.E.P.R. Discussion Papers.
- Oya Celasun, 2003. "Sticky Inflation and the Real Effects of Exchange Rate Based Stabilization," IMF Working Papers 03/151, International Monetary Fund.
- Allan Drazen & Elhanan Helpman, 1986.
"Inflationary Consequences of Anticipated Macroeconomic Policies,"
NBER Working Papers
2006, National Bureau of Economic Research, Inc.
- Allan Drazen & Elhanan Helpman, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 147-164.
- repec:dgr:rugccs:200101 is not listed on IDEAS
- Carlos A. VÃ©gh, 1992. "Stopping High Inflation: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 626-695, September.
- Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:04/111. 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: (Jim Beardow)or (Hassan Zaidi)
If references are entirely missing, you can add them using this form.