Disinflation and the supply side

Disinflation and the supply side

This paper studies the dynamics associated with permanent and temporary reductions in the devaluation rate. The analysis uses an intertemporal optimizing model of a small open economy with imperfect capital markets and endogenous labor supply. With a constant capital stock, the model predicts an ini...

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Bibliographic Details
Published in:Journal of macroeconomics Vol. 27; no. 4; pp. 596 - 620
Main Authors: Agénor, Pierre-Richard, Pizzati, Lodovico
Format: Journal Article
Language:English
Published: Amsterdam Elsevier Inc 01-12-2005
Elsevier
Elsevier Science Ltd
Series:Journal of Macroeconomics
Subjects:
Capital market
Capital markets
Deflation
Disinflation
Economic models
Imperfect capital markets
Investment
Investment dynamics
Labor supply
Macroeconomics
Studies
Supply
E44
F32
F34
Disinflation
Imperfect capital markets
Investment dynamics
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Summary:This paper studies the dynamics associated with permanent and temporary reductions in the devaluation rate. The analysis uses an intertemporal optimizing model of a small open economy with imperfect capital markets and endogenous labor supply. With a constant capital stock, the model predicts an initial reduction in real wages and an expansion in output. Consumption falls on impact but increases afterward. In addition, with a temporary shock, a current account deficit emerges and a recession sets in at a later stage. With endogenous capital accumulation, numerical simulations show that the model is also capable of predicting a boom in investment.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0164-0704
1873-152X
DOI:10.1016/j.jmacro.2004.03.003