Inflation and Its Variation: An Alternative Explanation

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Inflation and Its Variation: An Alternative Explanation

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Petra Geraats (UC Berkeley)

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Petra Maria Geraats

Abstract

This paper introduces a general objective function for monetary policy that abandons certainty equivalence and features 'prudence'. It provides an alternative explanation for the positive relation between the level and variability of inflation, both across countries and over time. In particular, the model predicts that high (low) inflation tends to be more variable (stable) over time.

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Publisher Info
Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number 1017.

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Date of creation: 01 Jul 1999
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Handle: RePEc:cdl:ciders:1017

Note: oai:cdlib1:iber/cider-1017
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Paper
- Petra M. Geraats, 2000. "Inflation and Its Variation: An Alternative Explanation," Macroeconomics 0004001, EconWPA. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Demetriades, Panikos, 1988. "Macroeconomic aspects of the correlation between the level and variability of inflation," Economics Letters, Elsevier, vol. 26(2), pages 121-124. [Downloadable!] (restricted)
Chadha, J.S. & Schellekens, P., 1998. "Utility Functions for Central Bankers - The Not So Drastic Quadratic," Discussion Paper Series In Economics And Econometrics 9818, Economics Division, School of Social Sciences, University of Southampton.
Other versions:
- Jagjit Chadha & Philip Schellekens, 1998. "Utility Functions For Central Bankers: The Not So Drastic Quadratic," FMG Discussion Papers dp308, Financial Markets Group. [Downloadable!] (restricted)
Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September. [Downloadable!] (restricted)
Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Oxford University Press, vol. 27(1), pages 105-16, January.

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Paolo Surico, 2004. "Measuring the time-inconsistency of US monetary policy," Money Macro and Finance (MMF) Research Group Conference 2003 96, Money Macro and Finance Research Group. [Downloadable!]
Other versions:
- Paolo Surico, 2003. "Measuring the time-inconsitency of US monetary policy," Working Paper Series 291, European Central Bank. [Downloadable!]
- Paolo Surico, 2004. "Measuring the Time-Inconsistency of US Monetary Policy," Macroeconomics 0401006, EconWPA. [Downloadable!]
- Paolo Surico, 2008. "Measuring the Time Inconsistency of US Monetary Policy," Economica, London School of Economics and Political Science, vol. 75(297), pages 22-38, 02. [Downloadable!] (restricted)
Cukierman, Alex & Muscatelli, V. Anton, 2002. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability? -- Theory and Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Geraats, P.M, 2005. "Transparency of Monetary Policy: Theory and Practice," Cambridge Working Papers in Economics 0549, Faculty of Economics, University of Cambridge. [Downloadable!]
Other versions:
- Petra Geraats, 2005. "Transparency of Monetary Policy: Theory and Practice," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Petra M. Geraats, 2006. "Transparency of Monetary Policy: Theory and Practice," CESifo Economic Studies, Oxford University Press, vol. 52(1), pages 111-152, March. [Downloadable!] (restricted)

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