Optimal-state-dependent rules, credibility, and inflationary inertia

Detalhes bibliográficos
Autor(a) principal: Bonomo, Marco Antônio Cesar
Data de Publicação: 1997
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
Texto Completo: http://hdl.handle.net/10438/12115
Resumo: This paper examines the output losses caused by disinflation and the role of credibility in a model where pricing mIes are optimal and individual prices are rigid. Individual nominal rigidity is modeled as resulting from menu costs. The interaction between optimal pricing mIes and credibility is essential in determining the inflationary inertia. A continued period of high inflation generates an asymmetric distribution of price deviations, with more prices that are substantially lower than their desired leveIs than prices that are substantially higher than the optimal ones. When disinflation is not credible, inflationary inertia is engendered by this asymmetry: idiosyncratic shocks trigger more upward than downward adjustments. A perfect1y credible disinflation causes an immediate change of pricing rules which, by rendering the price deviation distribution less asymmetric, practically annihilates inflationary inertia. An implication of our model is that stabilization may be sucessful even when credibility is low, provided that it is preceded by a mechanism of price alignment. We also develop an analytical framework for analyzing imperfect credibility cases.
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spelling Bonomo, Marco Antônio CesarEscolas::EPGEFGV2014-10-15T13:32:49Z2014-10-15T13:32:49Z1997-06-05http://hdl.handle.net/10438/12115This paper examines the output losses caused by disinflation and the role of credibility in a model where pricing mIes are optimal and individual prices are rigid. Individual nominal rigidity is modeled as resulting from menu costs. The interaction between optimal pricing mIes and credibility is essential in determining the inflationary inertia. A continued period of high inflation generates an asymmetric distribution of price deviations, with more prices that are substantially lower than their desired leveIs than prices that are substantially higher than the optimal ones. When disinflation is not credible, inflationary inertia is engendered by this asymmetry: idiosyncratic shocks trigger more upward than downward adjustments. A perfect1y credible disinflation causes an immediate change of pricing rules which, by rendering the price deviation distribution less asymmetric, practically annihilates inflationary inertia. An implication of our model is that stabilization may be sucessful even when credibility is low, provided that it is preceded by a mechanism of price alignment. We also develop an analytical framework for analyzing imperfect credibility cases.engEscola de Pós-Graduação em Economia da FGVSeminários de pesquisas econômica da EPGETodo cuidado foi dispensado para respeitar os direitos autorais deste trabalho. Entretanto, caso esta obra aqui depositada seja protegida por direitos autorais externos a esta instituição, contamos com a compreensão do autor e solicitamos que o mesmo faça contato através do Fale Conosco para que possamos tomar as providências cabíveisinfo:eu-repo/semantics/openAccessOptimal-state-dependent rules, credibility, and inflationary inertiainfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleEconomiaInflaçãoDeflaçãoreponame:Repositório Institucional do FGV (FGV Repositório Digital)instname:Fundação Getulio Vargas (FGV)instacron:FGVORIGINAL000086365.pdf000086365.pdfapplication/pdf1349982https://repositorio.fgv.br/bitstreams/f5ba8688-a2ba-4d87-8eff-2abd30d93390/downloadd111616b09d4aa60d50c6a79d93e1075MD51LICENSElicense.txtlicense.txttext/plain; charset=utf-84707https://repositorio.fgv.br/bitstreams/1b1f271d-63a5-4b2f-a77d-890c212e8621/downloaddfb340242cced38a6cca06c627998fa1MD52TEXT000086365.pdf.txt000086365.pdf.txtExtracted 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dc.title.eng.fl_str_mv Optimal-state-dependent rules, credibility, and inflationary inertia
title Optimal-state-dependent rules, credibility, and inflationary inertia
spellingShingle Optimal-state-dependent rules, credibility, and inflationary inertia
Bonomo, Marco Antônio Cesar
Economia
Inflação
Deflação
title_short Optimal-state-dependent rules, credibility, and inflationary inertia
title_full Optimal-state-dependent rules, credibility, and inflationary inertia
title_fullStr Optimal-state-dependent rules, credibility, and inflationary inertia
title_full_unstemmed Optimal-state-dependent rules, credibility, and inflationary inertia
title_sort Optimal-state-dependent rules, credibility, and inflationary inertia
author Bonomo, Marco Antônio Cesar
author_facet Bonomo, Marco Antônio Cesar
author_role author
dc.contributor.unidadefgv.por.fl_str_mv Escolas::EPGE
dc.contributor.affiliation.none.fl_str_mv FGV
dc.contributor.author.fl_str_mv Bonomo, Marco Antônio Cesar
dc.subject.area.por.fl_str_mv Economia
topic Economia
Inflação
Deflação
dc.subject.bibliodata.por.fl_str_mv Inflação
Deflação
description This paper examines the output losses caused by disinflation and the role of credibility in a model where pricing mIes are optimal and individual prices are rigid. Individual nominal rigidity is modeled as resulting from menu costs. The interaction between optimal pricing mIes and credibility is essential in determining the inflationary inertia. A continued period of high inflation generates an asymmetric distribution of price deviations, with more prices that are substantially lower than their desired leveIs than prices that are substantially higher than the optimal ones. When disinflation is not credible, inflationary inertia is engendered by this asymmetry: idiosyncratic shocks trigger more upward than downward adjustments. A perfect1y credible disinflation causes an immediate change of pricing rules which, by rendering the price deviation distribution less asymmetric, practically annihilates inflationary inertia. An implication of our model is that stabilization may be sucessful even when credibility is low, provided that it is preceded by a mechanism of price alignment. We also develop an analytical framework for analyzing imperfect credibility cases.
publishDate 1997
dc.date.issued.fl_str_mv 1997-06-05
dc.date.accessioned.fl_str_mv 2014-10-15T13:32:49Z
dc.date.available.fl_str_mv 2014-10-15T13:32:49Z
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url http://hdl.handle.net/10438/12115
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dc.publisher.none.fl_str_mv Escola de Pós-Graduação em Economia da FGV
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