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Inflation and Its Variation: An Alternative Explanation

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  • Geraats, Petra M.

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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Bibliographic 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 qt56b2g3vn.

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Date of creation: 01 Jul 1999
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Handle: RePEc:cdl:ciders:qt56b2g3vn

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Keywords: inflation; monetary policy; objective functions;

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Cited by:
  1. Petra Geraats, 2005. "Transparency of Monetary Policy: Theory and Practice," CESifo Working Paper Series 1597, CESifo Group Munich.
  2. Tsyplakov, Alexander, 2010. "The links between inflation and inflation uncertainty at the longer horizon," MPRA Paper 26908, University Library of Munich, Germany.
  3. 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.

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