Intergenerational Transmission of Inflation Aversion: Theory and Evidence

Etienne Farvaque () and Alexander Mihailov ()

No 2009-11, IRISS Working Paper Series from IRISS at CEPS/INSTEAD

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.

Keywords: intergenerational transmi; evolving preferences; inflation aversion; central bank independence; collective memory (search for similar items in EconPapers)
JEL-codes: D72 D83 E31 E58 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon and nep-pke
Date: 2009-09

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Related works:
Working Paper: Intergenerational Transmission of Inflation Aversion: Theory and Evidence (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:irs:iriswp:2009-11

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