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CONTRACTS, CREDIBILITY, AND COMMON KNOWLEDGE - THEIR INFLUENCE ON INFLATION CONVERGENCE

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UNSPECIFIED (1993) CONTRACTS, CREDIBILITY, AND COMMON KNOWLEDGE - THEIR INFLUENCE ON INFLATION CONVERGENCE. INTERNATIONAL MONETARY FUND STAFF PAPERS, 40 (1). pp. 178-201.

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Abstract

In this paper, three possible reasons are examined for a sluggish inflation response to a hard-currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. These findings are contrasted with the effects of government credibility and the speed of private sector learning, which are shown to have a major impact on the speed of inflation adjustment. But even if individual agents believe the government will not devalue its currency, it is shown that inflation inertia can still arise if these expectations are not common knowledge.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
Journal or Publication Title: INTERNATIONAL MONETARY FUND STAFF PAPERS
Publisher: INT MONETARY FUND
ISSN: 0020-8027
Official Date: March 1993
Dates:
DateEvent
March 1993UNSPECIFIED
Volume: 40
Number: 1
Number of Pages: 24
Page Range: pp. 178-201
Publication Status: Published

Data sourced from Thomson Reuters' Web of Knowledge

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