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The psychology of inflation, monetary policy and macroeconomic instability

  • Gaffeo, Edoardo
  • Canzian, Giulia

This paper extends a stylized AD/AS macroeconomic model to a setting in which inflation dynamics impinges on the sentiment of the public toward the future course of the economy. As individuals are allowed to exchange information on their personal mood and to persuade each other through repeated interactions, waves of optimism and pessimism emerge endogenously. The model is then used to analyze the stabilizing effect of alternative monetary policy rules.

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Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 40 (2011)
Issue (Month): 5 ()
Pages: 660-670

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Handle: RePEc:eee:soceco:v:40:y:2011:i:5:p:660-670
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620175

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