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Inflation Bias with Dynamic Phillips Curves and Impatient Policy Makers

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Author Info

  • Tatiana Kirsanova

    (University of Exeter)

  • David Vines

    (University of Oxford)

  • Simon Wren-Lewis

    (University of Oxford)

Abstract

We generalize the analysis of inflation bias with dynamic Phillips curves in three respects. First, we examine the discretionary (time consistent) solution in cases where the Phillips curve has both a backward-looking and forward-looking component. Second, we show that the commitment (time inconsistent) solution does not normally involve zero inflation and output at its natural rate. Instead, with a purely forward-looking Phillips curve and positive discounting, it will involve a dynamic path for inflation in which steady state inflation is below its target. In this sense, we obtain negative inflation bias. Third, we show that the timeless perspective policy has the same steady state as the commitment case, but without any short-term output gains.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages: 32

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Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:32

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Web page: http://www.degruyter.com

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Related research

Keywords: inflation bias; commitment; discretion; timeless perspective policy;

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