Why does high inflation raise inflation uncertainty?
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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- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- SORIN, Sylvain, 1988. "Supergames (on some recent advances)," CORE Discussion Papers 1988024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- Logue, Dennis E & Willett, Thomas D, 1976. "A Note on the Relation between the Rate and Variability of Inflation," Economica, London School of Economics and Political Science, vol. 43(17), pages 151-58, May.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
- Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 105-16, January.
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