Seminario "Reputation and the Credibility of Inflation Plans"
Miércoles 24/7, 12.15h
Presentado por Francisco Roldán
Abstract
We study the optimal design of inflation targets by a planner who lacks commitment and exerts imperfect control over inflation. The government’s reputation for being committed evolves as the public compares realized inflation to the targets. Reputation is valuable as it helps curb inflation expectations. However, plans that are more tempting to break lead to faster reputational losses in the ensuing equilibrium. The government announces a plan which balances low inflation promises with incentives to enhance credibility. We find that, despite the absence of private sources of inflation inertia, a gradual disinflation is preferred even in the zero-reputation limit.
*Jointly written with Rumen Kostadinov
Francisco Roldán
PhD in Economics, New York University.
Economist at International Monetary Fund, Research Department. His research topics are in macroeconomics, international finance, sovereign debt crises, and inflation dynamics.
We study the optimal design of inflation targets by a planner who lacks commitment and exerts imperfect control over inflation. The government’s reputation for being committed evolves as the public compares realized inflation to the targets. Reputation is valuable as it helps curb inflation expectations. However, plans that are more tempting to break lead to faster reputational losses in the ensuing equilibrium. The government announces a plan which balances low inflation promises with incentives to enhance credibility. We find that, despite the absence of private sources of inflation inertia, a gradual disinflation is preferred even in the zero-reputation limit.
*Jointly written with Rumen Kostadinov
Francisco Roldán
PhD in Economics, New York University.
Economist at International Monetary Fund, Research Department. His research topics are in macroeconomics, international finance, sovereign debt crises, and inflation dynamics.