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Disinflation With Imperfect Credibility

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  • Laurence Ball

Abstract

This paper presents a theory of the real effects of disinflation. As in New Keynesian models, price adjustment is staggered across firms, As in New Classical models, credibility is imperfect: the monetary authority may not complete a promised disinflation. The combination of imperfect credibility and staggering yields more plausible results than either of these assumptions alone. In particular, an announced disinflation reduces expected output if credibility is sufficiently low.

Suggested Citation

  • Laurence Ball, 1992. "Disinflation With Imperfect Credibility," NBER Working Papers 3983, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3983
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    References listed on IDEAS

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    1. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
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