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Disinflationary boom in a price-wage spiral model

Author

Listed:
  • Olivier Musy

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Jean-Christophe Pereau

Abstract

This paper analyses the impact of the disinflation policy timing on the sign and the magnitude of the sacrifice ratio in a modified price and wage staggered model of Blanchard (1986). When wages are updated every four quarters and prices every two quarters, we show that a "cold-turkey" disinflation is associated to an output boom when the policy is implemented during the last period of life of the wage contract and a recession the other quarters.

Suggested Citation

  • Olivier Musy & Jean-Christophe Pereau, 2009. "Disinflationary boom in a price-wage spiral model," Working Papers hal-04140853, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140853
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140853
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    References listed on IDEAS

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    3. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
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    6. Ehrmann, Michael & Smets, Frank & Altissimo, Filippo, 2006. "Inflation persistence and price-setting behaviour in the euro area: a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Disinflation policy; Shock timing; Sacrifice ratio; Price and wage staggered contracts;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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