Return The Output Effect of Stopping Inflation when Velocity is Time Varying

Lynne Evans () and Anamaria Nicolae
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Lynne Evans: Newcastle University Business School

No 2007_06, Department of Economics Working Papers from Durham University, Department of Economics

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; disinlfation; output boom; optimal speed of disinlfation (search for similar items in EconPapers)
JEL-codes: E20 E32 F32 F41 (search for similar items in EconPapers)
Date: 2007-08-01
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Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2007_06

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