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Inflation Bias (inflation + bias)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting75%

Selected Abstracts

Measuring the Time Inconsistency of US Monetary Policy

ECONOMICA, Issue 297 2008
PAOLO SURICO
This paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency. In the presence of asymmetric preferences, the monetary authorities generate a systematic inflation bias through the private-sector expectations of a larger policy response in recessions than in booms. The estimated Fed's implicit target for inflation has declined from the pre- to the post-Volcker regime. The average inflation bias was about 1% before 1979, but this has disappeared over the last two decades, because the preferences on output stabilization were large and asymmetric only in the former period. [source]

The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence*

THE ECONOMIC JOURNAL, Issue 484 2003
Berthold Herrendorf
Using the citizen-candidate model we study the government's choice of institutions for the labour market and the central bank and derive the implications for inflation and employment. We derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence, the post-election cycle in inflation and employment and inflation bias. Our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher, consistent with evidence for OECD countries. [source]

Stabilizing Output and Inflation: Policy Conflicts and Co-operation under a Stability Pact

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 5 2001
Marco Buti
The article analyses in a simple setting a game between an inflation-conservative central bank and a fiscal authority subject to an upper limit on the budget deficit. It is shown that complementarity or substitutability between the policies and the preference of each authority for the other authority's behaviour crucially depends on the type of shock hitting the economy. If the government attempts to stimulate output beyond its natural level, a ,deficit bias' emerges under non-co-operation; under co-operation, the equilibrium is characterized by both a ,deficit bias' and an ,inflation bias'. However, if the government only pursues cyclical stabilization these biases disappear and there are positive gains from co-ordinating the policy responses to shocks. [source]

Money Demand in an EU Accession Country: A VECM Study of Croatia

BULLETIN OF ECONOMIC RESEARCH, Issue 2 2006
Dario Cziráky
O42; E13; E41; E51 Abstract The paper estimates the money demand in Croatia using monthly data from 1994 to 2002. A failure of the Fisher equation is found, and adjustment to the standard money-demand function is made to include the inflation rate as well as the nominal interest rate. In a two-equation cointegrated system, a stable money demand shows rapid convergence back to equilibrium after shocks. This function performs better than an alternative using the exchange rate instead of the inflation rate as in the ,pass-through' literature on exchange rates. The results provide a basis for inflation rate forecasting and suggest the ability to use inflation targeting goals in transition countries during the EU accession process. Finding a stable money demand also limits the scope for central bank ,inflation bias'. [source]