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Can a DSGE Model Explain a Costly Disinflation?

Listed author(s):
  • Maria Ferrara
  • Patrizio Tirelli

This paper shows that a medium-scale DSGE model is able to explain a contemporaneous reduction of output and consumption during a disinflation policy, as it is in the empirical evidence. To this aim, we introduce Rotemberg (1982) adjustment costs and the limited asset market participation assumption.

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File URL: http://dems.unimib.it/repec/pdf/mibwpaper306.pdf
File Function: First version, 2015
Download Restriction: no

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 306.

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Length: 16
Date of creation: Aug 2015
Date of revision: Aug 2015
Handle: RePEc:mib:wpaper:306
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  1. Bilbiie, Florin O., 2008. "Limited asset markets participation, monetary policy and (inverted) aggregate demand logic," Journal of Economic Theory, Elsevier, vol. 140(1), pages 162-196, May.
  2. Benjamin Keen & Yongsheng Wang, 2007. "What is a realistic value for price adjustment costs in New Keynesian models?," Applied Economics Letters, Taylor & Francis Journals, vol. 14(11), pages 789-793.
  3. Merkl, Christian, 2013. "Disinflationary booms?," Economics Letters, Elsevier, vol. 121(1), pages 105-109.
  4. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 851, European Central Bank.
  5. Hofmann, Boris & Peersman, Gert & Straub, Roland, 2012. "Time variation in U.S. wage dynamics," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 769-783.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  8. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 1005-1060.
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