Why Speed Doesn’t Kill: Learning to Believe in Disinflation |
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| Authors: | Eric Schaling Marco Hoeberichts |
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| Institution: | 1.Wits Business School,Johannesburg,South Africa;2.Centre for Dynamic Macroeconomic Analysis,University of St. Andrews,St. Andrews,Scotland, UK;3.Center for Economic Research,Tilburg University,Tilburg,The Netherlands;4.Economics and Research Division,De Nederlandsche Bank,Amsterdam,The Netherlands |
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| Abstract: | Central bankers generally prefer to reduce inflation gradually. We show that a central bank may try to convince the private
sector of its commitment to price stability by choosing to reduce inflation quickly. We call this “teaching by doing”. We
find that allowing for teaching by doing effects always speeds up the disinflation and leads to lower inflation persistence.
So, we clarify why “speed” in the disinflation process does not necessarily “kill” in the sense of creating large output losses. |
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