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Memories of high inflation

  • Ehrmann, Michael
  • Tzamourani, Panagiota

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 50,000 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 10years. 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 pro-active communication, especially with the younger generations, about the merits of low and stable inflation.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 28 (2012)
Issue (Month): 2 ()
Pages: 174-191

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Handle: RePEc:eee:poleco:v:28:y:2012:i:2:p:174-191
DOI: 10.1016/j.ejpoleco.2011.11.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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