Working Paper: NBER ID: w3224
Authors: Laurence Ball
Abstract: This paper presents a model of monetary policy in which a rise in inflation raises uncertainty about future inflation. When inflation is low, there is a consensus that the monetary authority will try to keep it low. When inflation is high, policymakers face a dilemma: they would like to disinflate, but fear the recession that would result. The public does not know the tastes of future policymakers, and thus does not know whether disinflation will occur.
Keywords: inflation; monetary policy; uncertainty
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high inflation (E31) | inflation uncertainty (E31) |
| high inflation (E31) | uncertainty about future monetary policy responses (E49) |
| high inflation (E31) | public cannot predict Fed's actions (E52) |
| alternating power dynamic (D74) | increased uncertainty about future inflation rates (D89) |
| high inflation (E31) | different responses to inflation (E31) |