Imperfectly Credible Disinflation under Endogenous Time-Dependent Pricing

Posted: 20 Oct 2011

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2010

Abstract

The real effects of an imperfectly credible disinflation depend critically on the extent of price rigidity. We examine this interaction in a model with endogenous time-dependent pricing. Both the endogenous initial degree of price rigidity and changes in the duration of price spells during disinflation are important in explaining the effects of imperfect credibility. We initially consider a setup where the degree of credibility is fixed and then allow agents to update beliefs about the “type” of monetary authority that they face. In both cases, the interaction between endogeneity of pricing behavior and imperfect credibility increases the output costs of disinflation.

Keywords: disinflation, credibility, optimal price setting, endogenous time-dependent pricing

JEL Classification: E31, E52

Suggested Citation

Bonomo, Marco and Carvalho, Carlos, Imperfectly Credible Disinflation under Endogenous Time-Dependent Pricing (August 1, 2010). Journal of Money, Credit, and Banking, Vol. 42, No. 5, 2010, Available at SSRN: https://ssrn.com/abstract=1946041

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
278
PlumX Metrics