Disinflationary boom in a price-wage spiral model

Olivier Musy and Pereau, Jean-Christophe

No 2009-36, EconomiX Working Papers from University of Paris West - Nanterre la Défense, EconomiX

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.

Keywords: Disinflation policy; Shock timing; Sacrifice ratio; Price and wage staggered contracts. (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:drm:wpaper:2009-36

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