State-Dependent Nominal Rigidities & Disinflation Programs in Small Open Economies

No 06-13, Working Papers from University of Delaware, Department of Economics

Abstract: Experiences of high-inflation economies suggest that exchange rate-based (ERB) and money-based (MB) disinflations induce sharply different dynamics in consumption and GDP. I study the role of nominal rigidities to explain such dynamics. I build on Calvo pricing to introduce elements of state-dependent into an otherwise standard small open economy. This new feature delivers state-dependent nominal rigidities (SDNR). Nonlinear simulations show that the model with SDNR generates a dynamic behavior consistent with both ERB and MB disinflations; however the model’s special case with constant nominal rigidities is not successful rationalizing ERB disinflations.

Keywords: Nominal rigidities; disinflations; state-dependent pricing; exchange-rate based stablizations (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2006
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: State-Dependent Nominal Rigidities & Disinflation Programs in Small Open Economies (2004)
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