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Contacts, Credibility and Common Knowledge Their Influenceon Inflation Convergence

In this paper three possible reasons are examined for a sluggish inflation response to a hard currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. This contrasts with the effects of government credibility and the speed of private sector learning, whic...

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Bibliographic Details
Main Author: Miller, Marcus
Other Authors: Sutherland, Alan
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1992
Series:IMF Working Papers
Subjects:
Inflation
Rational Expectations
Economic Theory
Currency; Foreign Exchange
Inflation Persistence
Deflation
Expectations
Economic Theory & Philosophy
Foreign Exchange
Price Level
Conventional Peg
Rational Expectations; Economic Theory
Prices
Macroeconomics
Exchange Rates
Speculations
Germany
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:In this paper three possible reasons are examined for a sluggish inflation response to a hard currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. This contrasts with the effects of government credibility and the speed of private sector learning, which are shown to have a major impact on the speed of inflation adjustment. But even if individual agents believe the government will not devalue, it is shown that inflation inertia can still arise if these expectations are not common knowledge
Physical Description:24 pages
ISBN:9781451981773

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