Credible Disinflation with Staggered Price Setting, Issue 3555
This paper determines the real effects of credible disinflation when price setting is staggered. The results are surprising: a fairly quick disinflation causes a boom. This finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies.
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1050 Massachusetts Avenue aggregate price level average avoid a recession boom for v-l boom occurs Bureau of Economic causes a boom causes a recession cold turkey concavity of m(t constant-output path contraction mapping costs of disinflation credibility problems David Romer derives the behavior disinflation path DISINFLATION WITH STAGGERED disinflations cause booms Economic Research faster paths Fed announces firm's fixed between adjustments fixed prices full credibility Gregory Mankiw implies a boom intuition keeps output constant Keynesian larger boom Laurence Ball lemma level of money Mankiw money growth money stock National Bureau natural rate NBER Ost<l output falls overhang of predetermined path for m(t path for money path of prices path that keeps Phelps predetermined prices prices and output prices are fixed produces a boom quick disinflation causes reaches zero relax the assumption rf(t Section set before t-0 smallest solution for p(t staggered price setting strict inequality Substituting Taylor time-varying prices