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Why does high inflation raise inflation uncertainty?

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  • Ball, Laurence

Abstract

This paper presents a model of monetary policy in which a rise in inflation raises uncertainty about future inflation. When inflation is low, there is a consensus that the monetary authority will try to keep it low. When inflation is high, policymakers face a dilemma: they would like to disinflate, but fear the recession that would result. The public does not know the tastes of future policymakers, and thus does not know whether disinflation will occur.
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Suggested Citation

  • Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
  • Handle: RePEc:eee:moneco:v:29:y:1992:i:3:p:371-388
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    5. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
    6. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    7. SORIN, Sylvain, 1988. "Supergames (on some recent advances)," LIDAM Discussion Papers CORE 1988024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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