A Generic Model of Monetary Policy, Inflation, and Reputation

Herschel Grossman

No 2239, NBER Working Papers from National Bureau of Economic Research, Inc

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 it is concerned about controlling inflation, even though it does not have a direct preference for a low actual inflation rate. The analysis also shows how the sovereign's prospects for survival and the private agents' memory process play critical roles in determining whether the reputational equilibrium approximates a hypothetical equilibrium with binding commitments.

Date: 1987-05
Note: ME EFG
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Published as "Inflation and Reputation with Generic Policy Preferences." From Journal of Money, Credit and Banking, Vol. 22, No. 2, pp. 165-177, (May 1990).

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