Disinflation and the Supply Side

The authors study the dynamics of output, consumption, and real wages induced by a disinflation program based on permanent and temporary reductions in the nominal devaluation rate. They use an intertemporal optimizing model of a small open economy...

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Main Authors:	Agenor, Pierre-Richard, Lodovico, Pizzati
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ASSETS BORROWING CAPITAL ACCUMULATION CAPITAL GAINS CAPITAL GOODS CAPITAL MARKETS CAPITAL MOBILITY CAPITAL STOCK CAPITAL- LABOR CENTRAL BANK CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION INCREASES COUNTRY RISK CURRENT ACCOUNT BALANCE CURRENT ACCOUNTS DEBT DECREASING RETURNS DEFICITS DEMAND ELASTICITY DEVALUATION DISINFLATION DYNAMIC MODEL EARNINGS ELASTICITIES ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPLOYMENT ENDOGENOUS VARIABLE EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXTERNAL DEBT FIRST YEAR FOREIGN ASSETS FOREIGN CURRENCY GOVERNMENT BONDS GOVERNMENT EXPENDITURE GROSS INVESTMENT IMPORTS INCOME INCOME EFFECT INCREASE IN LABOR INFLATION RATE INTEREST RATE LABOR SUPPLY LEISURE LEVEL OF OUTPUT MARGINAL COST MARGINAL PRODUCT MARGINAL PRODUCTIVITY MARGINAL UTILITY MARGINAL VALUE MARKET VALUE MONEY BALANCES MONEY DEMAND MONEY MARKET MONEY STOCK MONEY SUPPLY NET INCOME NET INVESTMENT NET WORTH NOMINAL INTEREST RATE NOMINAL INTEREST RATES NUMERICAL SIMULATIONS OFFICIAL RESERVES OPPORTUNITY COST PRESENT PRICES PRESENT VALUE PRIVATE CONSUMPTION PRODUCERS PRODUCTION FUNCTION PRODUCTION INPUTS PRODUCTION PROCESS PRODUCTION TECHNOLOGY RATE OF RETURN REAL EXCHANGE RATE REAL INTEREST RATE REAL RATE OF INTEREST REAL WAGE REAL WAGES RECESSION RESERVES RISK PREMIUM SCENARIOS SIDE EFFECTS SIMULATION TECHNIQUES STABILIZATION STABILIZATION PROGRAMS STATE EQUILIBRIUM SUPPLY CURVE TOTAL CONSUMPTION TOTAL OUTPUT TRADE BALANCE TRADE DEFICIT UTILITY FUNCTION WAGES WEALTH
Online Access:	http://documents.worldbank.org/curated/en/2000/03/437968/disinflation-supply-side http://hdl.handle.net/10986/19846

id	okr-10986-19846
recordtype	oai_dc
spelling	okr-10986-198462021-04-23T14:03:47Z Disinflation and the Supply Side Agenor, Pierre-Richard Lodovico, Pizzati ASSETS BORROWING CAPITAL ACCUMULATION CAPITAL GAINS CAPITAL GOODS CAPITAL MARKETS CAPITAL MOBILITY CAPITAL STOCK CAPITAL- LABOR CENTRAL BANK CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION INCREASES COUNTRY RISK CURRENT ACCOUNT BALANCE CURRENT ACCOUNTS DEBT DECREASING RETURNS DEFICITS DEMAND ELASTICITY DEVALUATION DISINFLATION DYNAMIC MODEL EARNINGS ELASTICITIES ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPLOYMENT ENDOGENOUS VARIABLE EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXTERNAL DEBT FIRST YEAR FOREIGN ASSETS FOREIGN CURRENCY GOVERNMENT BONDS GOVERNMENT EXPENDITURE GROSS INVESTMENT IMPORTS INCOME INCOME EFFECT INCREASE IN LABOR INFLATION RATE INTEREST RATE LABOR SUPPLY LEISURE LEVEL OF OUTPUT MARGINAL COST MARGINAL PRODUCT MARGINAL PRODUCTIVITY MARGINAL UTILITY MARGINAL VALUE MARKET VALUE MONEY BALANCES MONEY DEMAND MONEY MARKET MONEY STOCK MONEY SUPPLY NET INCOME NET INVESTMENT NET WORTH NOMINAL INTEREST RATE NOMINAL INTEREST RATES NUMERICAL SIMULATIONS OFFICIAL RESERVES OPPORTUNITY COST PRESENT PRICES PRESENT VALUE PRIVATE CONSUMPTION PRODUCERS PRODUCTION FUNCTION PRODUCTION INPUTS PRODUCTION PROCESS PRODUCTION TECHNOLOGY RATE OF RETURN REAL EXCHANGE RATE REAL INTEREST RATE REAL RATE OF INTEREST REAL WAGE REAL WAGES RECESSION RESERVES RISK PREMIUM SCENARIOS SIDE EFFECTS SIMULATION TECHNIQUES STABILIZATION STABILIZATION PROGRAMS STATE EQUILIBRIUM SUPPLY CURVE TOTAL CONSUMPTION TOTAL OUTPUT TRADE BALANCE TRADE DEFICIT UTILITY FUNCTION WAGES WEALTH The authors study the dynamics of output, consumption, and real wages induced by a disinflation program based on permanent and temporary reductions in the nominal devaluation rate. They use an intertemporal optimizing model of a small open economy in which domestic households face imperfect world capital markets, the labor supply is endogenous, and wages are flexible. The model predicts that, with a constant capital stock and no investment, there is an initial reduction in real wages and output expands. Consumption falls on impact but increases afterward. In addition, with a temporary shock, a current account deficit emerges and, later a recession sets in, as documented in various studies. With endogenous capital accumulation, numerical simulations show that the model can also predict a boom in investment. 2014-08-28T19:09:40Z 2014-08-28T19:09:40Z 2000-03 http://documents.worldbank.org/curated/en/2000/03/437968/disinflation-supply-side http://hdl.handle.net/10986/19846 English en_US Policy Research Working Paper;No. 2304 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ASSETS BORROWING CAPITAL ACCUMULATION CAPITAL GAINS CAPITAL GOODS CAPITAL MARKETS CAPITAL MOBILITY CAPITAL STOCK CAPITAL- LABOR CENTRAL BANK CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION INCREASES COUNTRY RISK CURRENT ACCOUNT BALANCE CURRENT ACCOUNTS DEBT DECREASING RETURNS DEFICITS DEMAND ELASTICITY DEVALUATION DISINFLATION DYNAMIC MODEL EARNINGS ELASTICITIES ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPLOYMENT ENDOGENOUS VARIABLE EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXTERNAL DEBT FIRST YEAR FOREIGN ASSETS FOREIGN CURRENCY GOVERNMENT BONDS GOVERNMENT EXPENDITURE GROSS INVESTMENT IMPORTS INCOME INCOME EFFECT INCREASE IN LABOR INFLATION RATE INTEREST RATE LABOR SUPPLY LEISURE LEVEL OF OUTPUT MARGINAL COST MARGINAL PRODUCT MARGINAL PRODUCTIVITY MARGINAL UTILITY MARGINAL VALUE MARKET VALUE MONEY BALANCES MONEY DEMAND MONEY MARKET MONEY STOCK MONEY SUPPLY NET INCOME NET INVESTMENT NET WORTH NOMINAL INTEREST RATE NOMINAL INTEREST RATES NUMERICAL SIMULATIONS OFFICIAL RESERVES OPPORTUNITY COST PRESENT PRICES PRESENT VALUE PRIVATE CONSUMPTION PRODUCERS PRODUCTION FUNCTION PRODUCTION INPUTS PRODUCTION PROCESS PRODUCTION TECHNOLOGY RATE OF RETURN REAL EXCHANGE RATE REAL INTEREST RATE REAL RATE OF INTEREST REAL WAGE REAL WAGES RECESSION RESERVES RISK PREMIUM SCENARIOS SIDE EFFECTS SIMULATION TECHNIQUES STABILIZATION STABILIZATION PROGRAMS STATE EQUILIBRIUM SUPPLY CURVE TOTAL CONSUMPTION TOTAL OUTPUT TRADE BALANCE TRADE DEFICIT UTILITY FUNCTION WAGES WEALTH
spellingShingle	ASSETS BORROWING CAPITAL ACCUMULATION CAPITAL GAINS CAPITAL GOODS CAPITAL MARKETS CAPITAL MOBILITY CAPITAL STOCK CAPITAL- LABOR CENTRAL BANK CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION INCREASES COUNTRY RISK CURRENT ACCOUNT BALANCE CURRENT ACCOUNTS DEBT DECREASING RETURNS DEFICITS DEMAND ELASTICITY DEVALUATION DISINFLATION DYNAMIC MODEL EARNINGS ELASTICITIES ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPLOYMENT ENDOGENOUS VARIABLE EQUILIBRIUM EXCESS DEMAND EXCHANGE RATE EXCHANGE RATE APPRECIATION EXTERNAL DEBT FIRST YEAR FOREIGN ASSETS FOREIGN CURRENCY GOVERNMENT BONDS GOVERNMENT EXPENDITURE GROSS INVESTMENT IMPORTS INCOME INCOME EFFECT INCREASE IN LABOR INFLATION RATE INTEREST RATE LABOR SUPPLY LEISURE LEVEL OF OUTPUT MARGINAL COST MARGINAL PRODUCT MARGINAL PRODUCTIVITY MARGINAL UTILITY MARGINAL VALUE MARKET VALUE MONEY BALANCES MONEY DEMAND MONEY MARKET MONEY STOCK MONEY SUPPLY NET INCOME NET INVESTMENT NET WORTH NOMINAL INTEREST RATE NOMINAL INTEREST RATES NUMERICAL SIMULATIONS OFFICIAL RESERVES OPPORTUNITY COST PRESENT PRICES PRESENT VALUE PRIVATE CONSUMPTION PRODUCERS PRODUCTION FUNCTION PRODUCTION INPUTS PRODUCTION PROCESS PRODUCTION TECHNOLOGY RATE OF RETURN REAL EXCHANGE RATE REAL INTEREST RATE REAL RATE OF INTEREST REAL WAGE REAL WAGES RECESSION RESERVES RISK PREMIUM SCENARIOS SIDE EFFECTS SIMULATION TECHNIQUES STABILIZATION STABILIZATION PROGRAMS STATE EQUILIBRIUM SUPPLY CURVE TOTAL CONSUMPTION TOTAL OUTPUT TRADE BALANCE TRADE DEFICIT UTILITY FUNCTION WAGES WEALTH Agenor, Pierre-Richard Lodovico, Pizzati Disinflation and the Supply Side
relation	Policy Research Working Paper;No. 2304
description	The authors study the dynamics of output, consumption, and real wages induced by a disinflation program based on permanent and temporary reductions in the nominal devaluation rate. They use an intertemporal optimizing model of a small open economy in which domestic households face imperfect world capital markets, the labor supply is endogenous, and wages are flexible. The model predicts that, with a constant capital stock and no investment, there is an initial reduction in real wages and output expands. Consumption falls on impact but increases afterward. In addition, with a temporary shock, a current account deficit emerges and, later a recession sets in, as documented in various studies. With endogenous capital accumulation, numerical simulations show that the model can also predict a boom in investment.
format	Publications & Research :: Policy Research Working Paper
author	Agenor, Pierre-Richard Lodovico, Pizzati
author_facet	Agenor, Pierre-Richard Lodovico, Pizzati
author_sort	Agenor, Pierre-Richard
title	Disinflation and the Supply Side
title_short	Disinflation and the Supply Side
title_full	Disinflation and the Supply Side
title_fullStr	Disinflation and the Supply Side
title_full_unstemmed	Disinflation and the Supply Side
title_sort	disinflation and the supply side
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2000/03/437968/disinflation-supply-side http://hdl.handle.net/10986/19846
_version_	1764441664414285824

Disinflation and the Supply Side

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