Expectations Formation and Inflation Persistence

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Expectations Formation and Inflation Persistence

Author Info

Carlson, J.A.
Valev, N.T.

Abstract

This paper studies the dynamics of inflation if monetary policy is transparent only to part of the population. We find that average long-run inflation decreases in the proportion of agents with naive expectations and, because of tradeoffs between speed of adjustment and long-run inflation, central banks prefer a higher proportion of agents who form informed expectations in high inflation periods but not so in lower inflation periods. We use survey data on expectations of inflation from Bulgaria collected at the time a currency board was introduced in that country to test for influences on the heterogeneity of expectations across agents.

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Publisher Info
Paper provided by Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER) in its series Papers with number 98-005.

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Length: 24 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:purkib:98-005

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Postal: Purdue University, Center for International Business Education and Research, Krannert Graduate School of Management, 1310 Krannert Building West Lafayette, Indiana 47907-1310.
Web page: http://www.krannert.purdue.edu/
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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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