Output Effects of Disinflation with Staggered Price Setting

A discrete-time model with staggered price setting is shown to be flexible enough to analyze a variety of scenarios in which policymakers may introduce disinflation. While a recession need not necessarily occur, a semicredible disinflation (i.e., when price setters believe a new lower money growth rate will continue but do not act on future reductions) unambiguously depresses output with staggered prices, no matter how rapidly or slowly the disinflation is introduced.