Credibility Effects of Price Controls in Disinflation Programs

October 1, 1992

Preview Citation

Format: Chicago

Pierre-Richard Agénor. Credibility Effects of Price Controls in Disinflation Programs, (USA: International Monetary Fund, 1992) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines whether price controls may enhance the credibility of a disinflation program, using a framework in which agents behave strategically. The analysis indicates that a partial price freeze is not fully credible, and may result in inflation inertia. The authorities may be able to determine optimally the intensity of price controls so as to minimize the policy loss associated with a discretionary monetary strategy. But the optimal intensity of controls is shown to be significantly different from zero only if the cost of enforcing price ceilings is not too high, or if the weight attached to price distortions in the policymaker’s loss function is small.

Subject: Asset prices, Demand elasticity, Economic theory, Inflation, Optimal taxation, Price controls, Prices, Tax policy

Keywords: Asset prices, Demand elasticity, Demand shock, Inflation, Intensity of price controls, Optimal taxation, Price controls, Price distortion, Price expectation, Price rule, Price-control policy, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/083
Stock No:

WPIEA0831992
ISBN:

9781451850482
ISSN:

1018-5941

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