The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Inflation Expectations

  • Bennett T. McCallum
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_793

Abstract

Agents’ expectations about future values of inflation play an important role in macroeconomic analysis. From a steady-state perspective, higher expected inflation rates induce agents to hold smaller real money balances and, in most models, to hold different amounts of capital. In dynamic analysis, inflationary expectations affect agents’ decisions regarding saving and price adjustments, and affect monetary policy behaviour in ways that have become increasingly important. Over time, analysts’ treatment of expectations evolved from distributed-lag, adaptive models to rational expectations, a change that had major analytical implications. Analysis of learning behaviour has become more prominent, supplementing or occasionally replacing rational expectations.

Keywords

Bretton Woods system Commodity money Distributed lags E-stability Fiat money Fisher, I. Hyperinflation Infinite horizons Inflation Inflation targeting Inflationary expectations Learning in macroeconomics Leisure Long-term interest rates Lump-sum taxes Monetary policy Monetary policy rules Neutrality of money New Keynesian macroeconomics New neoclassical synthesis Phillips curve Rational expectations Real business cycles Real vs nominal interest rates Recursive least squares learning Stabilization policy Steady-state theorizing Sticky prices Thornton, H. Time preference Transversality condition Wicksell, K. 

JEL Classifications

E3 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Bennett T. McCallum
    • 1
  1. 1.