Type
Working paper
Titre
The Signaling Effect of Raising Inflation
Dans
Sciences Po Economics Discussion Papers
Auteur(s)
BARTHÉLEMY Jean - Banque de France (Auteur)
MENGUS Eric - HEC Paris - Recherche - Hors Laboratoire (Auteur)
Collection
Sciences Po Economics Discussion Papers : 2016-06
Mots clés
Forward guidance, Inflation, Signaling
Résumé
EN
This paper argues that central bankers should raise inflation when anticipating liquidity traps to signal their credibility to forward guidance policies. As stable inflation in normal times either stems from central banker's credibility, e.g. through reputation, or from his aversion to inflation, the private sector is unable to infer the central banker's type from observing stable inflation, jeopardizing the efficiency of forward guidance policy. We show that this signaling motive can justify level of inflation well above 2% but also that the low inflation volatility during the Great Moderation was insufficient to ensure fully efficient forward guidance when needed.

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