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Why Do People Dislike Inflation?

A questionnaire survey was conducted to explore how people think about inflation, and what real problems they see it as causing. With results from 677 people, comparisons were made among people in the U.S., Germany, and Brazil, between young and old, and between economists and non-economists. Among non-economists in all countries, the largest concern with inflation appears to be that it lowers people's standard of living. Non-economists appear often to believe in a sort of sticky-wage model, by which wages do not respond to inflationary shocks, shocks which are themselves perceived as caused by certain people or institutions acting badly. This standard of living effect is not the only perceived cost of inflation among non-economists; other perceived costs are tied up with issues of exploitation, political instability, loss of morale, and damage to national prestige. The most striking differences between groups studied were between economists and non-economists. There were also important international and intergenerational differences. The U.S.-Germany differences (on questions not just about information) were usually less strong than the intergenerational differences.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1115.

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Length: 54 pages
Date of creation: Mar 1996
Date of revision:
Publication status: Published in Reducing Inflation: Motivation and Strategy, NBER, 1997, pp. 13-70
Handle: RePEc:cwl:cwldpp:1115
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  3. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 810-833, December.
  4. Branson, William H & Klevorick, Alvin K, 1969. "Money Illusion and the Aggregate Consumption Function," American Economic Review, American Economic Association, vol. 59(5), pages 832-49, December.
  5. Shafir, Eldar & Diamond, Peter & Tversky, Amos, 1997. "Money Illusion," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 341-74, May.
  6. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
  7. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-73, May.
  8. Bach, G L & Stephenson, James B, 1974. "Inflation and the Redistribution of Wealth," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 1-13, February.
  9. Cargill, Thomas F, 1969. "An Empirical Investigation of the Wage-Lag Hypothesis," American Economic Review, American Economic Association, vol. 59(5), pages 806-16, December.
  10. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
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