## Credibility Effects of Price Controls in Disinflation Programs

_IMF Working Papers, October 1, 1992_

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**Canonical URL:** [Credibility Effects of Price Controls in Disinflation Programs](https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-effects-of-price-controls-in-disinflation-programs-833)

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## Bibliographic details
- Authors: Pierre-Richard Agénor
- Published: October 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850482.001

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### Main findings
- 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:
  - the cost of enforcing price ceilings is not too high, or
  - the weight attached to price distortions in the policymaker’s loss function is small.

### Analytical framework and mechanisms
- 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.

### Policy implications and recommendations
- Implementing price controls can, under certain conditions, reduce the policymaker’s loss from discretionary monetary strategies.
- Policymakers should weigh:
  - enforcement costs of price ceilings, and
  - the relative weight assigned to price distortions in their loss function,
  before opting for nonzero intensity of price controls.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/credibility-effects-of-price-controls-in-disinflation-programs-833_