DP326 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, Inflation|
|JEL(s):||134, 431, 432|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=326|
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.