Can Tighter Money Now Mean Higher Inflation Now?
Sargent and Wallace (1981) have shown by an example, termed "spectacular", that a lowering of the growth rate of money may in some cases increase the rate of inflation - not only in the end, but even from the start. I show that this "spectacular" result ceases to hold if the central bank is restricted always to choose the lowest final inflation rate. On the other hand, the spectacular result may appear again if the parameters of their example are changed in a suitable way.
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|Date of creation:||1996|
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