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Title: The Cost of Disinflation and the European Monetary System

Author(s): Paul De Grauwe

Publication Date: July 1989

Keyword(s): EMS, Europe, European Monetary System and Inflation

Programme Area(s): International Macroeconomics

Abstract: In this paper we present empirical evidence indicating that the EMS countries have experienced a worsening of their inflation/unemployment trade-off since 1979 which on average was more pronounced than in the rest of the OECD area (including the other European countries). We interpret this evidence as follows: the EMS forced its high-inflation members to follow gradual disinflationary policies. As a result, the authorities of these countries gained reputation only slowly compared with countries which applied a shock therapy (UK, US). This also forced them to apply deflationary policies longer than if they had used a shock therap.

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Bibliographic Reference

De Grauwe, P. 1989. 'The Cost of Disinflation and the European Monetary System'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=326