NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation Announcements and Social Dynamics

Kinda Hachem, Jing Cynthia Wu

NBER Working Paper No. 20161
Issued in May 2014
NBER Program(s):   EFG   ME

We propose a new framework for understanding the effectiveness of central bank announcements when firms have heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose to operate, putting downward pressure on realized inflation. Our model predicts that announcing an abrupt target to disinflate will cause inflation to undershoot the target whereas announcing gradual targets will not. We present new empirical evidence that corroborates this prediction. The same model also rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

This paper was revised on September 14, 2016

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20161

Users who downloaded this paper also downloaded these:
Banerjee, Meng, Porzio, and Qian w20050 Aggregate Fertility and Household Savings: A General Equilibrium Analysis using Micro Data
Calvo, Coricelli, and Ottonello w19683 Jobless Recoveries During Financial Crises: Is Inflation the Way Out?
Alvarez, Le Bihan, and Lippi w20155 Small and Large Price Changes and the Propagation of Monetary Shocks
Del Negro, Giannoni, and Schorfheide w20055 Inflation in the Great Recession and New Keynesian Models
Gans w20160 Weak Versus Strong Net Neutrality
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us