1. Intergenerational Transmission of Inflation Aversion: Theory and Evidence
- Author
-
Farvaque, Etienne and Mihailov, Alexander
- Subjects
jel:D72 ,jel:D83 ,jel:H41 ,Intergenerational transmission, evolving preferences, inflation aversion, central bank independence, demographic change, income inequality ,jel:E31 ,intergenerational transmi ,evolving preferences ,inflation aversion ,central bank independence ,collective memory ,jel:E58 ,jel:J10 ,jel:E24 - Abstract
This paper studies the transmission of preferences in an overlapping-generations model with heterogeneous mature agents characterized by different degrees of inflation aversion. We show how the dynamics of a society's degree of inflation aversion and the implied degree of central bank independence depend on the direction and speed of changes in the structure of the population's preferences, themselves a function of parent socialization efforts in response to observed inflation. We then construct a survey-based measure of inflation aversion and provide empirical support for our analytical and simulation results. Available cross-section evidence confirms that a nation's demographic structure, in particular variation in the share of retirees as a proxy for the more inflation-averse type, is a key determinant of inflation aversion, together with experience with past inflation and the resulting collective memory embodied in monetary institutions.
- Published
- 2008