The Signaling Effect of Raising Inflation

Eric Mengus and Jean Barthélemy

No 1162, HEC Research Papers Series from HEC Paris

Abstract: This paper argues that central bankers should temporarily raise inflation when anticipating liquidity traps to signal their credibility to forward guidance policies. As stable inflation in normal times either stems from central banker's credibility, e.g. through reputation, or from his aversion to inflation, the private sector is unable to infer the central banker's type from observing stable inflation, jeopardizing the efficiency of forward guidance policy. We show that this signaling motive can justify temporary deviations of inflation from target well above 2% but also that the low inflation volatility during the Great Moderation was insufficient to ensure fully efficient forward guidance when needed.

Keywords: Forward Guidance; Inflation; Signaling (search for similar items in EconPapers)
JEL-codes: E31 E52 E65 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2016-07-01, Revised 2017-01-09
New Economics Papers: this item is included in nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808461 Full text (application/pdf)

Related works:
Journal Article: The signaling effect of raising inflation (2018)
Working Paper: The Signaling Effect of Raising Inflation (2016)
Working Paper: The Signaling Effect of Raising Inflation (2016)
Working Paper: The Signaling Effect of Raising Inflation (2016)
Working Paper: The Signaling Effect of Raising Inflation (2016)
Working Paper: The signaling effect of raising inflation (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1162

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 78351 Jouy-en-Josas cedex, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().