For smaller disinflations, the qualitative results still hold; however, the scale of the output effects are smaller.
To this end, the more debatable issue is how costly disinflations really are.
Over an extended time, these short-term losses will not be as costly as a quick disinflation.
More practically, the loss of credibility by the central bank will greatly reduce both the maximum achievable net output, and the optimal disinflation length.
The resurgence of actual and prospective disinflation in industrialized countries has resulted in new interest in the possibility of self-fulfilling deflationary expectations.
This paper analyzes exchange-rate dynamics following a money-based disinflation under different degrees of exchange-rate pass-through.
As more firms are able to update their prices to reflect the disinflation, the money path overshoots the aggregate price level producing the boom.
Recall that a disinflation implies a fall in the expected inflation rate and the nominal interest rate and therefore a rise in money demand.
