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Intergenerational Transmission of Inflation Aversion: Theory and Evidence

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  • Etienne Farvaque

    ()
    (Equippe - Universités de Lille, and DULBEA - Université Libre de Bruxelles.)

  • Alexander Mihailov

    ()
    (School of Economics, University of Reading)

Abstract

We study the evolution of inflation aversion preferences across generations. In the theoretical part of the paper, we analyze the dynamics of such preferences in an overlapping-generations model with heterogenous mature agents characterized by different degrees of inflation aversion. We show how the stability of a society’s degree of inflation aversion depends on the strength and speed of changes in the structure of the population. The empirical part then proposes two applications in support of the theoretical results. We first link demographic structures to inflation aversion, and then proceed by looking at the relations between income (in)equality and measures of inflation aversion.

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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series Economics & Management Discussion Papers with number em-dp2008-71.

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Length: 33 pages
Date of creation: 23 Nov 2008
Date of revision:
Handle: RePEc:rdg:emxxdp:em-dp2008-71

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Keywords: Intergenerational transmission; evolving preferences; inflation aversion; central bank independence; demographic change; income inequality;

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References

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  1. Nelson, Edward, 2008. "Ireland and Switzerland: The jagged edges of the Great Inflation," European Economic Review, Elsevier, vol. 52(4), pages 700-732, May.
  2. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
  3. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
  4. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  5. Brumm, Harold J., 2002. "Inflation and Central Bank independence revisited," Economics Letters, Elsevier, vol. 77(2), pages 205-209, October.
  6. Berentsen, Aleksander & Strub, Carlo, 2009. "Central bank design with heterogeneous agents," European Economic Review, Elsevier, vol. 53(2), pages 139-152, February.
  7. Bisin, Alberto & Verdier, Thierry, 2000. "A model of cultural transmission, voting and political ideology," European Journal of Political Economy, Elsevier, vol. 16(1), pages 5-29, March.
  8. María Sáez-Martí & Anna Sjögren, 2008. "Peers and Culture," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 73-92, 03.
  9. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
  10. Stefan Krause & Fabio Mendez, 2003. "Policy Makers' Preferences, Party Ideology, and the Political Business Cycle," Emory Economics 0319, Department of Economics, Emory University (Atlanta).
  11. Bullard, James & Waller, Christopher J, 2004. "Central Bank Design in General Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 95-113, February.
  12. Luca Antonio Ricci & Pierpaolo Benigno, 2009. "The Inflation-Unemployment Trade-off at Low Inflation," IMF Working Papers 09/34, International Monetary Fund.
  13. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta).
  14. Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers 429, Board of Governors of the Federal Reserve System (U.S.).
  15. Jayadev, Arjun, 2006. "Differing preferences between anti-inflation and anti-unemployment policy among the rich and the poor," Economics Letters, Elsevier, vol. 91(1), pages 67-71, April.
  16. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  17. Scheve, Kenneth, 2004. "Public Inflation Aversion and the Political Economy of Macroeconomic Policymaking," International Organization, Cambridge University Press, vol. 58(01), pages 1-34, February.
  18. de Jong, Eelke, 2002. "Why are price stability and statutory independence of central banks negatively correlated? The role of culture," European Journal of Political Economy, Elsevier, vol. 18(4), pages 675-694, November.
  19. Christopher Crowe & Ellen E. Meade, 2007. "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 69-90, Fall.
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Citations

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Cited by:
  1. 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.
  2. Verme, Paolo, 2009. "Happiness, Deprivation and the Alter Ego," IRISS Working Paper Series 2009-18, IRISS at CEPS/INSTEAD.
  3. Ehrmann, Michael & Tzamourani, Panagiota, 2009. "Memories of high inflation," Working Paper Series 1095, European Central Bank.

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