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On the 'conquest' of inflation

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Author Info

  • Andrea Gerali

    ()
    (Bank of Italy, Economic Research Department)

  • Francesco Lippi

    ()
    (Bank of Italy, Economic Research Department)

Abstract

Sargent (1999) warns that if policymakersÂ’ views on the unemployment - inflation tradeoff are driven by empirical correlations rather than theory, disinflations (escapes from high to low inflation) may periodically occurr but are not bound to last. This paper asks how different inflation objectives on the part of the policymaker affect this result. We show that escapes in the neighborhood of zero inflation are less frequent and have a shorter duration as policy objectives become more inflation-averse. A sufficiently (but not infinitely) inflationaverse policymaker never escapes Nash inflation and, on average, yields a lower inflation rate.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 444.

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Date of creation: Jul 2002
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Handle: RePEc:bdi:wptemi:td_444_02

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Web page: http://www.bancaditalia.it
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Related research

Keywords: inflation bias; disinflation; learning; conservative bankers;

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References

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  1. Cukierman, A., 1996. "The Economics of Central Banking," Papers 36-96, Tel Aviv.
  2. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
  3. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Cited by:
  1. Francesco Columba, 2004. "Transaction Technology Innovation and Demand for Overnight Deposits in Italy," Macroeconomics 0404011, EconWPA.
  2. Ellison, Martin & Graham, Liam & Vilmunen, Jouko, 2004. "Strong Contagion with Weak Spillovers," CEPR Discussion Papers 4762, C.E.P.R. Discussion Papers.
  3. Paolo Angelini & Paolo Del Giovane & Stefano Siviero & Daniele Terlizzese, 2002. "Monetary Policy Rules for the Euro Area: What Role for National Information?," Temi di discussione (Economic working papers) 457, Bank of Italy, Economic Research and International Relations Area.
  4. Berardi, Michele, 2013. "Escape Dynamics And Policy Specification," Macroeconomic Dynamics, Cambridge University Press, vol. 17(01), pages 123-142, January.
  5. Robert Tetlow & Peter von zur Muehlen, 2004. "Avoiding Nash Inflation: Bayesian and Robus Responses to Model Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 869-899, October.
  6. Martin Ellison & Tony Yates, 2007. "Escaping Nash and volatile inflation," Bank of England working papers 330, Bank of England.

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