Why Does High Inflation Raise Inflation Uncertainty?

This paper presents a model of monetary policy in which a rise in

inflation raises uncertainty about future inflation. When inflation is low,

there is a consensus that the monetary authority will try to keep it low. When

inflation is high, policyniakers face a dilemma: they would like to disinflate,

but fear the recession that would result. The public does not know the tastes

of future policymakers, and thus does not know whether disinflation will occur.

^*Published: Journal of Monetary Economics, June 1992,pp. 371-388

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