The Impact of Imperfect Credibility in a Transition to Price Stability

Anamaria Nicolae, Charles Nolan

    Research output: Contribution to journalArticlepeer-review

    10 Citations (Scopus)

    Abstract

    In this paper we study the impact of a temporary lack of credibility in a transition to price stability. We quantify the effects of a period of disinflation on temporary output losses, and the impact of the lack of credibility on the optimal speed of disinflation. We demonstrate that the '' disinflationary booms '' found by Ball (1994) and Ireland (1997) may or may not disappear in an environment with imperfect credibility, depending on the speed of learning relative to the speed of disinflation. Finally, we enquire whether the speed of the Volcker disinflation was excessive or not.

    Original languageEnglish
    Pages (from-to)47-66
    Number of pages20
    JournalJournal of Money, Credit and Banking
    Volume38
    Issue number1
    DOIs
    Publication statusPublished - Feb 2006

    Keywords

    • price stability
    • imperfect credibility
    • optimal speed of disinflation
    • MONETARY-POLICY
    • DISINFLATION
    • INFLATION
    • ADJUSTMENT

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