Intergenerational Transmission of Inflation Aversion: Theory and Evidence
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.
|Date of creation:||Sep 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 11, Porte des Sciences, L-4366 Esch-sur-Alzette, G.-D. Luxembourg|
Phone: 00352 / 58 58 55 - 1
Fax: 00352 / 58 58 55 - 700
Web page: http://iriss.ceps.lu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stefan Krause & Fabio Mendez, 2005.
"Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis,"
0501, Department of Economics, Emory University (Atlanta).
- Krause, Stefan & Méndez, Fabio, 2008. "Institutions, arrangements and preferences for inflation stability: Evidence and lessons from a panel data analysis," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 282-307, March.
- Sáez-Martí, María & Sjögren, Anna, 2005.
"Peers and Culture,"
Working Paper Series
642, Research Institute of Industrial Economics.
- Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
- Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
- George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
- Luca Antonio Ricci & Pierpaolo Benigno, 2009.
"The Inflation-Unemployment Trade-off at Low Inflation,"
IMF Working Papers
09/34, International Monetary Fund.
- Pierpaolo Benigno & Luca Antonio Ricci, 2008. "The Inflation-Unemployment Trade-Off at Low Inflation," NBER Working Papers 13986, National Bureau of Economic Research, Inc.
- Bisin, A. & Verdier, T., 1999.
"A Model of Cultural Transmission, Voting and Political Ideology,"
1999-13, Laval - Laboratoire Econometrie.
- Bisin, Alberto & Verdier, Thierry, 2000. "A model of cultural transmission, voting and political ideology," European Journal of Political Economy, Elsevier, vol. 16(1), pages 5-29, March.
- Bisin, A. & Verdier, T., 1999. "A model of cultural transmission, voting and political ideology," DELTA Working Papers 1999-13, DELTA (Ecole normale supérieure).
- Stefan Krause & Fabio Méndez, 2005.
"Policy Makers' Preferences, Party Ideology, and the Political Business Cycle,"
Southern Economic Journal,
Southern Economic Association, vol. 71(4), pages 752-767, April.
- Stefan Krause & Fabio Mendez, 2003. "Policy Makers' Preferences, Party Ideology, and the Political Business Cycle," Emory Economics 0319, Department of Economics, Emory University (Atlanta).
- Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
- Jayadev, Arjun, 2006. "Differing preferences between anti-inflation and anti-unemployment policy among the rich and the poor," Economics Letters, Elsevier, vol. 91(1), pages 67-71, April.
- Nelson, Edward, 2008.
"Ireland and Switzerland: The jagged edges of the Great Inflation,"
European Economic Review,
Elsevier, vol. 52(4), pages 700-732, May.
- Edward Nelson, 2006. "Ireland and Switzerland: the jagged edges of the Great Inflation," Working Papers 2006-016, Federal Reserve Bank of St. Louis.
- Bullard, James & Waller, Christopher J, 2004.
"Central Bank Design in General Equilibrium,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 36(1), pages 95-113, February.
- de Jong, Eelke, 2002. "Why are price stability and statutory independence of central banks negatively correlated? The role of culture," European Journal of Political Economy, Elsevier, vol. 18(4), pages 675-694, November.
- Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers 429, Board of Governors of the Federal Reserve System (U.S.).
- Bisin, A. & Verdier, T., 1997.
"The Economics of Cultural Transmission and the Dynamics of Preferences,"
DELTA Working Papers
97-03, DELTA (Ecole normale supérieure).
- Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
- Scheve, Kenneth, 2004. "Public Inflation Aversion and the Political Economy of Macroeconomic Policymaking," International Organization, Cambridge University Press, vol. 58(01), pages 1-34, February.
- Brumm, Harold J., 2002. "Inflation and Central Bank independence revisited," Economics Letters, Elsevier, vol. 77(2), pages 205-209, October.
- Aleksander Berentsen & Carlo Strub, 2008.
"Central Bank Design with Heterogeneous Agents,"
IEW - Working Papers
365, Institute for Empirical Research in Economics - University of Zurich.
- Christopher Crowe & Ellen E. Meade, 2007. "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 69-90, Fall.
When requesting a correction, please mention this item's handle: RePEc:irs:iriswp:2009-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Philippe Van Kerm)
If references are entirely missing, you can add them using this form.