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:
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
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