Inflation and Reputation with Generic Policy Preferences

Herschel Grossman

Journal of Money, Credit and Banking, 1990, vol. 22, issue 2, 165-77

Abstract: This paper analyzes a reputational equilibrium for inflation under the generic assumption that monetary policy reflects proximate preferences for low expected inflation and positive unexpected inflation. The paper stresses the qualitative implication, that in a reputational equilibrium, the policymaker behaves as if he is concerned about controlling inflation, even though he does not have a direct preference for a low actual inflation rate. The analysis also shows how the equilibrium inflation rate depends on a decision interval that reflects the underlying real objectives of monetary policy and that determines how fast private agents would react to opportunistic behavior by the policymaker. Copyright 1990 by Ohio State University Press.

Date: 1990
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