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| Author: | Celasun, O. Gelos, R.G. Prati, A. |
| Title: | Obstacles to disinflation: what is the role of fiscal expectations? |
| Journal: | Economic Policy
2004 : OCT, 40, p. 441, 443-481 |
| Index terms: | Fiscal policy Inflation |
| Language: | eng |
| Abstract: | Persistently high expected inflation (hereafter as: infl.) often makes it difficult for policy-makers to recover from infl.-y episodes without substantial output losses. Using survey data from 11 disinfl. episodes, it is possible to assess whether the more or less sluggish decline of infl. rates towards lower target levels is related to backward-looking pricing behaviour or to imperfect credibility of the stabilization efforts. It is found that expectations (here as: exps.) of future infl. play a much more important role than past infl. in shaping the infl. process. Second, it is found that an improvement in various measures of fiscal balances significantly reduces infl. exps. This evidence suggests that, when attempting to stabilize infl., priority should be given to building fiscal credibility. |
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