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Memories of high inflation

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  • Ehrmann, Michael
  • Tzamourani, Panagiota

Abstract

Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability, using a large database covering over 52,000 survey responses from 23 countries over the years 1981-2000. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in the importance attached to price stability does therefore most likely reflect mitigated inflation concerns in an environment of low and stable inflation, but also the consequences of fading memories of high inflation. The longer central banks have successfully delivered price stability, the more important it is for them to engage in a proactive communication, especially with the younger generations, about the merits of low and stable inflation. JEL Classification: D10, E31, E52

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Paper provided by European Central Bank in its series Working Paper Series with number 1095.

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Date of creation: Sep 2009
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Handle: RePEc:ecb:ecbwps:20091095

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Keywords: hyperinflation; inflation aversion; inflation memories; inflation targeting; World Values Survey;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. German Inflation Aversion and Policy Preferences
    by Liam Delaney in Economics and Psychology Research on 2012-06-09 15:55:00
  2. Memories, & mechanisms
    by chris dillow in Stumbling and Mumbling on 2014-03-17 14:07:14
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series 201308, Hamburg University, Department Wirtschaft und Politik.
  2. Hayat, Muhammad Azmat & Farvaque, Etienne, 2012. "Public attitudes towards central bank independence: Lessons from the foundation of the ECB," European Journal of Political Economy, Elsevier, vol. 28(4), pages 512-523.
  3. Ampudia, Miguel & Ehrmann, Michael, 2014. "Macroeconomic experiences and risk taking of euro area households," Working Paper Series 1652, European Central Bank.
  4. Wolfgang J. Luhan & Johann Scharler, 2013. "Monetary Policy, Inflation Illusion and the Taylor Principle – An Experimental Study," Ruhr Economic Papers 0402, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Michael Berlemann & Sören Enkelmann, 2013. "Die „German Angst“ – Inflationsaversion in Ost- und Westdeutschland," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 20(02), pages 03-09, 04.
  6. Caio Waisman & João Manoel Pinho de Mello & Eduardo Zilberman, 2013. "The Effects of Exposure to Hyperinflation on Occupational Choice," Textos para discussão 614, Department of Economics PUC-Rio (Brazil).
  7. Bernd Hayo & Edith Neuenkirch, 2013. "The German Public and its Trust in the ECB: The Role of Knowledge and Information Search," MAGKS Papers on Economics 201347, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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