On the 'conquest' of inflation
AbstractSargent (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 InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 444.
Date of creation: Jul 2002
Date of revision:
inflation bias; disinflation; learning; conservative bankers;
Other versions of this item:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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