Endogenous time-dependent rules and inflation inertia: preliminary version

Carlos Carvalho and Marco Bonomo

No 348, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: When policy rules are changed, the effect of nominal rigidities should be modelled through endogenous pricing rules. We endogenize Taylor (1979) type pricing rule to examine the output effects of monetary disinflations. We derive optimal fixed-price time-dependent rules in inflationary steady states and during disinflations. We also develop a methodology to aggregate individual pricing rules which vary through disinflation. This allows us to reevaluate the output costs of monetary disinflation, including aspects as the role of the initial leveI of inflation and the importance of the degree of credibility of the policy change.

Date: 1999-06
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Citations: View citations in EconPapers (9)

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