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Intergenerational Transmission of Inflation Aversion: Theory and Evidence

Author

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  • Farvaque, Etienne

    (Université de Lille 1)

  • Mihailov, Alexander

    (University of Reading)

Abstract

This paper studies the transmission of preferences in an overlapping-generations model with heterogeneous mature agents characterized by different degrees of inflation aversion. We show how the dynamics of a society's degree of inflation aversion and the implied degree of central bank independence depend on the direction and speed of changes in the structure of the population's preferences, themselves a function of parent socialization efforts in response to observed inflation. We then construct a survey-based measure of inflation aversion and provide empirical support for our analytical and simulation results. Available cross-section evidence confirms that a nation's demographic structure, in particular variation in the share of retirees as a proxy for the more inflation-averse type, is a key determinant of inflation aversion, together with experience with past inflation and the resulting collective memory embodied in monetary institutions.

Suggested Citation

  • Farvaque, Etienne & Mihailov, Alexander, 2009. "Intergenerational Transmission of Inflation Aversion: Theory and Evidence," IRISS Working Paper Series 2009-11, IRISS at CEPS/INSTEAD.
  • Handle: RePEc:irs:iriswp:2009-11
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hayo, Bernd & Neuenkirch, Edith, 2014. "The German public and its trust in the ECB: The role of knowledge and information search," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 286-303.
    2. Diouf, Ibrahima & Pépin, Dominique, 2017. "Gender and central banking," Economic Modelling, Elsevier, vol. 61(C), pages 193-206.
    3. repec:bla:worlde:v:40:y:2017:i:4:p:654-677 is not listed on IDEAS
    4. Ehrmann, Michael & Tzamourani, Panagiota, 2012. "Memories of high inflation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 174-191.
    5. Etienne Farvaque & Muhammad Azmat Hayat & Alexander Mihailov, 2017. "Who Supports the ECB? Evidence from Eurobarometer Survey Data," The World Economy, Wiley Blackwell, vol. 40(4), pages 654-677, April.
    6. Hayat, Muhammad Azmat & Farvaque, Etienne, 2012. "Public attitudes towards central bank independence: Lessons from the foundation of the ECB," European Journal of Political Economy, Elsevier, vol. 28(4), pages 512-523.
    7. Verme, Paolo, 2009. "Happiness, Deprivation and the Alter Ego," IRISS Working Paper Series 2009-18, IRISS at CEPS/INSTEAD.
    8. Diouf, Ibrahima & Pépin, Dominique, 2017. "Gender and central banking," Economic Modelling, Elsevier, vol. 61(C), pages 193-206.

    More about this item

    Keywords

    intergenerational transmi ; evolving preferences ; inflation aversion ; central bank independence ; collective memory;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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