This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: menu costs unexpected inflation redistributes income from lenders to borrowers misperceptions theory Why Policymakers Allow Inflation to Occur cost push inflation - higher costs shift up SRAS demand pull inflation - increases in total spending Costs of Reducing Inflation cold turkey vs. gradual disinflation Rules v. Discretion rules policy policy settings are maintained regardless of short-term fluctuations in economic activity discretionary policy adjusted periodically in order to deal with changing conditions in the economy case for rules hostage example monetary policy time inconsistency government has an incentive to renege on its promises Ways to Achieve Central Bank Credibility 1. policy rule 2. appointing a "tough" central banker 3. changing central banker's incentives 4. increasing central bank independence...
View Full Document
- Fall '09
- Personal Finance