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On the 'Conquest' of Inflation

Andrea Gerali () and Francesco Lippi

No 3101, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Sargent (1999) warns that if policy makers’ views on the unemployment-inflation trade-off are driven by empirical correlations, rather than theory, disinflations (escapes from high to low inflation) may periodically occur but are not bound to last. This Paper asks how different inflation objectives by the policy maker affect this result. We show that escapes in the neighborhood of zero inflation are less frequent and have a shorter duration, as policy objectives become more inflation averse. A sufficiently (but not infinitely) inflation averse policy maker never escapes Nash inflation and, on average, yields a lower inflation rate.

Keywords: conservative bankers; disinflation; inflation bias; learning (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2001-12
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