Three great american disinflations

  • In this paper, we examine three famous episodes of deliberate deflation (or disinflation) in U.S. history, including episodes following the Civil War, World War I, and the Volcker disinflation of the early 1980s. These episodes were associated with widely divergent effects on the real economy, which we attribute both to differences in the policy actions undertaken, and to the transparency and credibility of the monetary authorities. We attempt to account for the salient features of each episode within the context of a stylized DSGE model. Our model simulations indicate how a more predictable policy of gradual deflation could have helped avoid the sharp post-WWI depression. But our analysis also suggests that the strong argument for gradualism under a transparent monetary regime becomes less persuasive if the monetary authority lacks credibility; in this case, an aggressive policy stance (as under Volcker) can play a useful signalling role by making a policy shift more apparent to private agents. JEL Classification: E31, E32, E52

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Metadaten
Author:Michael Bordo, Christopher Erceg, Andrew Levin, Ryan Michaels
URN:urn:nbn:de:hebis:30-38146
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2007,05
Series (Serial Number):CFS working paper series (2007, 05)
Document Type:Working Paper
Language:English
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2007/02/23
Tag:DSGE Model; credibility; deflation
GND Keyword:USA; Deflation; Geschichte 1866-1879; Geschichte 1920-1922; Geschichte 1979-1983
Issue:November 24, 2006
Page Number:49
Note:
November 24, 2006
HeBIS-PPN:190226870
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht