{
  "title": "Credibility Effects of Price Controls in Disinflation Programs",
  "publication": "IMF Working Papers, October 1, 1992",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-effects-of-price-controls-in-disinflation-programs-833",
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  "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.",
  "sections": [
    {
      "heading": "Main findings",
      "content": "- The paper examines whether price controls may enhance the credibility of a disinflation program, using a framework in which agents behave strategically.\n- A partial price freeze is not fully credible, and may result in inflation inertia.\n- 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.\n- The optimal intensity of controls is shown to be significantly different from zero only if:\n  - the cost of enforcing price ceilings is not too high, or\n  - the weight attached to price distortions in the policymaker’s loss function is small."
    },
    {
      "heading": "Analytical framework and mechanisms",
      "content": "- Strategic behavior by agents is central to the analysis.\n- Price controls considered include a partial price freeze and price ceilings.\n- Credibility effects are assessed in terms of their interaction with discretionary monetary policy and the resulting inflation expectations and inertia."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Implementing price controls can, under certain conditions, reduce the policymaker’s loss from discretionary monetary strategies.\n- Policymakers should weigh:\n  - enforcement costs of price ceilings, and\n  - the relative weight assigned to price distortions in their loss function,\n  before opting for nonzero intensity of price controls.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-effects-of-price-controls-in-disinflation-programs-833"
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/credibility-effects-of-price-controls-in-disinflation-programs-833/index.md)",
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    "Authors: Pierre-Richard Agénor",
    "Published: October 1, 1992",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451850482.001",
    "The paper examines whether price controls may enhance the credibility of a disinflation program, using a framework in which agents behave strategically.",
    "A partial price freeze is not fully credible, and may result in inflation inertia.",
    "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.",
    "The optimal intensity of controls is shown to be significantly different from zero only if:",
    "Strategic behavior by agents is central to the analysis.",
    "Price controls considered include a partial price freeze and price ceilings.",
    "Credibility effects are assessed in terms of their interaction with discretionary monetary policy and the resulting inflation expectations and inertia.",
    "Implementing price controls can, under certain conditions, reduce the policymaker’s loss from discretionary monetary strategies.",
    "Policymakers should weigh:"
  ],
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