The Output Effect of Stopping Inflation when Velocity is Time Varying

20 Pages Posted: 5 Sep 2007

See all articles by Lynne Evans

Lynne Evans

Durham University - Department of Economics and Finance

Anamaria Nicolae

Durham University Business School

Date Written: August 2007

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.

Keywords: price stability, velocity, disinflation, output boom, optimal speed of disinflation

JEL Classification: E20, E32, F32, F41

Suggested Citation

Evans, Lynne and Nicolae, Anamaria, The Output Effect of Stopping Inflation when Velocity is Time Varying (August 2007). Durham Business School Working Paper No. 109, Available at SSRN: https://ssrn.com/abstract=1011146 or http://dx.doi.org/10.2139/ssrn.1011146

Lynne Evans (Contact Author)

Durham University - Department of Economics and Finance ( email )

Durham, DH1 3HY
United Kingdom
+44-191-3747287 (Phone)
+44-191-3747289 (Fax)

Anamaria Nicolae

Durham University Business School ( email )

Mill Hill Lane
Durham, dh1 3lb
United Kingdom

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