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Is Delayed Disinflation More Costly?
Author(s) -
Boschen John F.,
Weise Charles L.
Publication year - 2001
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2001.tb00364.x
Subject(s) - disinflation , economics , inflation (cosmology) , credibility , monetary economics , monetary policy , macroeconomics , keynesian economics , physics , theoretical physics , political science , law
An often‐stated piece of monetary policy wisdom is that postponing disinflation raises the ultimate cost of disinflation. However, there is little empirical work that directly tests the validity of this view. This paper is a study of the relation between the duration of inflation and the cost of subsequent disinflation using 67 disinflation episodes in OECD countries from 1960 through 1993. The estimates indicate that delaying disinflation raises the output loss per unit of inflation reduction, although the effect is not statistically significant in all models. The largest marginal effects of delay occur soon after inflation is allowed to get under way, a finding consistent with a rapid decline in the credibility of the inflating central bank.