Endogenous Time-Dependent Rules and Inflation Inertia

Marco Bonomo and Carlos Carvalho

Macroeconomics from University Library of Munich, Germany

Abstract: In this paper we endogenize fixed price time-dependent rules to examine the output effects of monetary disinflation. We derive the optimal rules in and out of inflationary steady states, and develop a methodology to aggregate individual pricing rules which vary through time. Because of strategic complementarities we have to solve both problems simultaneously. This allows us to reassess the output costs of monetary disinflations, including aspects such as the roles of the initial level of inflation, and of the degree of strategic complementarity in price. Finally, we relax the strict assumption of pure time-dependent rules by allowing price setters to reevaluate their rules at the time disinflation is announced.

JEL-codes: E (search for similar items in EconPapers)
Date: 2004-02-03, Revised 2005-11-15
New Economics Papers: this item is included in nep-mon
Note: Type of Document - pdf
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Citations: View citations in EconPapers (6)

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Journal Article: Endogenous Time-Dependent Rules and Inflation Inertia (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0402005

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