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Return The Output Effect of Stopping Inflation when Velocity is Time Varying

Author

Listed:
  • Lynne Evans

    (Newcastle University Business School)

  • Anamaria Nicolae

    (Durham Business School)

Abstract

This paper explores the effect of time varying velocity in a transition to price stability. Nonstationary velocity, expressed as function of consumption, is made endogenous in Ireland's (1997) model. We find that the disinflationary booms found by Ball (1994) may or may not disappear; and also that temporary output losses may be much larger than previously thought, depending on velocity. A gradual disinflation of low inflation may even be undesirable given its overall negative impact on the economy. Finally, we explore the optimal speed of disinflation.

Suggested Citation

  • Lynne Evans & Anamaria Nicolae, 2007. "Return The Output Effect of Stopping Inflation when Velocity is Time Varying," Working Papers 2007_06, Durham University Business School.
    • Handle: RePEc:dur:durham:2007_06
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    File URL: http://dro.dur.ac.uk/10368
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    References listed on IDEAS

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    1. Aubhik Khan & Robert G. King & Alexander L. Wolman, 2003. "Optimal Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(4), pages 825-860.
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    3. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-261, March.
    4. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
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    6. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
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    More about this item

    Keywords

    price stability; velocity; disinlfation; output boom; optimal speed of disinlfation;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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