Endogenous Time-Dependent Rules and Inflation Inertia

Posted: 18 Apr 2010

See all articles by Marco Bonomo

Marco Bonomo

Insper Institute of Education and Research

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Date Written: December 31, 2004

Abstract

In this paper we endogenize fixed price time-dependent rules to examine the output effects of monetary disinflation. We derive the optimal rules in and out of inflationary steady states, and develop a methodology to aggregate individual pricing rules which vary through time. Because of strategic complementarities we have to solve both problems simultaneously. This allows us to reassess the output costs of monetary disinflations, including aspects such as the roles of the initial level of inflation, and of the degree of strategic complementarity in price setting. Finally, we relax the strict assumption of pure time-dependent rules by allowing price setters to reevaluate their rules at the time disinflation is announced.

Keywords: time-dependent rules, optimal pricing rules, information costs,inflation inertia

JEL Classification: E31, E52

Suggested Citation

Bonomo, Marco and Carvalho, Carlos, Endogenous Time-Dependent Rules and Inflation Inertia (December 31, 2004). Journal of Money, Credit, and Banking, Vol. 36, No. 6, 2004, Available at SSRN: https://ssrn.com/abstract=1591468

Marco Bonomo

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Carlos Carvalho (Contact Author)

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

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