Journal Article
The Real Effects of Credible Disinflation in the Presence of Real Wage Rigidities
Authors
Publication Date
DOI
10.1111/ecca.12288
JEL Classification
E31
E50
Key Words
Related Topics
Monetary Policy
Business Cycle World
Business Cycle
The paper re‐examines the real effects of credible disinflation in the presence of real wage rigidities and non‐linear dynamics. A credible, gradual disinflation is shown to lead to a delayed output slump along the transition path if real wage rigidities are sufficiently strong. This result is novel and holds across alternative models of nominal inertia—price staggering and price adjustment costs. In the special case of a cold‐turkey disinflation, price adjustment costs imply an immediate but short‐lived slump while price staggering implies a long‐lasting boom.
