On the 'conquest' of inflation
Sargent (1999) warns that if policymakersï¿½ views on the unemployment - inflation tradeoff are driven by empirical correlations rather than theory, disinflations (escapes from high to low inflation) may periodically occurr but are not bound to last. This paper asks how different inflation objectives on the part of the policymaker affect this result. We show that escapes in the neighborhood of zero inflation are less frequent and have a shorter duration as policy objectives become more inflation-averse. A sufficiently (but not infinitely) inflationaverse policymaker never escapes Nash inflation and, on average, yields a lower inflation rate.
|Date of creation:||Jul 2002|
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Economics Working Papers
350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
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- Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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