1 option
Inflation Announcements and Social Dynamics / Kinda Hachem, Jing Cynthia Wu.
- Format:
- Book
- Author/Creator:
- Hachem, Kinda.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w20161.
- NBER working paper series no. w20161
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2014.
- Summary:
- We propose a new framework for understanding the effectiveness of central bank announcements when firms have heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose to operate, putting downward pressure on realized inflation. Our model rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive. The same model also predicts that announcing an abrupt target to disinflate will cause inflation to undershoot the target whereas announcing gradual targets will not. We present new empirical evidence that corroborates this prediction.
- Notes:
- Print version record
- May 2014.
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