Credibility Effects of Price Controls in Disinflation Programs

Pierre-Richard Agénor

No 1992/083, IMF Working Papers from International Monetary Fund

Abstract: This paper examines whether price controls may enhance the credibility of a disinflation program, using a framework in which agents behave strategically. The analysis indicates that a partial price freeze is not fully credible, and may result in inflation inertia. The authorities may be able to determine optimally the intensity of price controls so as to minimize the policy loss associated with a discretionary monetary strategy. But the optimal intensity of controls is shown to be significantly different from zero only if the cost of enforcing price ceilings is not too high, or if the weight attached to price distortions in the policymaker’s loss function is small.

Keywords: WP; demand shock; price-control policy; price expectation; price rule; intensity of price controls; price distortion; Price controls; Inflation; Asset prices; Optimal taxation; Demand elasticity (search for similar items in EconPapers)
Pages: 23
Date: 1992-10-01
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Journal Article: Credibility effects of price controls in disinflation programs (1995)
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