Inflation Bias with Dynamic Phillips Curves

28 Pages Posted: 15 Jun 2006

See all articles by David Vines

David Vines

University of Oxford - Balliol College - Department of Economics; Australian National University (ANU); Centre for Economic Policy Research (CEPR)

Tatiana Kirsanova

University of Glasgow

Simon Wren-Lewis

University of Oxford - Economics Department

Date Written: March 2006

Abstract

We generalise the analysis of inflation bias with dynamic Phillips curves in three respects. First, we examine the discretionary (time consistent) solution in cases where the Phillips curve has both a backward looking and forward-looking component. Second, we show that the commitment (time inconsistent) solution does not normally involve zero inflation and output at its natural rate. Instead, with a purely forward-looking Phillips curve and positive discounting, it will involve a dynamic path for inflation in which steady state inflation is below its target. In this sense, we obtain negative inflation bias. Third, we show that the timeless perspective policy has the same steady state as the commitment case, but without any short-term output gains.

Keywords: Inflation bias, commitment, discretion, timeless perspective policy

JEL Classification: E52, E61, E63, F41

Suggested Citation

Vines, David and Kirsanova, Tatiana and Wren-Lewis, Simon J.Q., Inflation Bias with Dynamic Phillips Curves (March 2006). CEPR Discussion Paper No. 5534, Available at SSRN: https://ssrn.com/abstract=909277

David Vines (Contact Author)

University of Oxford - Balliol College - Department of Economics ( email )

Manor Road
Oxford, OX1 3BJ, Oxfordshire OX13UQ
United Kingdom
+44 1865 271 067 (Phone)
+44 1865 271 094 (Fax)

Australian National University (ANU)

Canberra, Australian Capital Territory
Australia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tatiana Kirsanova

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Simon J.Q. Wren-Lewis

University of Oxford - Economics Department ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
31
Abstract Views
798
PlumX Metrics